MIDEAST, started in 1993, investment so far Rs 750 cr Project shut, promoters fighting cases, FIs and Orissa Government talking to Tatas for revival

ESSAR OIL, started in 1994, investment so far Rs 6,194 cr Completed financial closure, project likely to go onstream by end-2003 investment so far Rs 14,200 cr ($2.9 b)

From a distance, the sky-high chimneys look impressive. It is only as you draw closer that the sordidness unfolds. Weeds have grown all over the fencing. Machinery is rusting. So are the blast furnaces and the captive power plant. Not a soul is to be seen. This is-rather, this was to-a Rs 750 crore, seven lakh tonne per annum pig iron plant employing 650 people, some of whom were given jobs as compensation for land surrendered. It is a terrain reminiscent of an industrial rust belt. Only, unlike a rust belt, the plant is coming apart not because of overuse, but because of disuse.

The sprawling and crumbling steel plant of Mideast Integrated Steels in Orissa's Jajpur district isn't the only monument of waste dotting India's industrial landscape. It is one of the many stalled projects euphemistically referred to as "projects under completion" by financial institutions (FIs) and banks.

The total investment trapped in this litany of nightmares is estimated to be more than Rs 50,000 crore. Of this, Rs 20,000 crore came from the three FIs-Rs 6,000 crore from IFCI, Rs 11,000 crore from IDBI and Rs 3,000 crore from ICICI. The major projects are, among others, Mesco's Mideast, Essar Oil, Usha Ispat, Malvika Steel and spic Petro. None of the FIs, however, officially discloses the total funds blocked in such ventures. They also don't reveal the project names. "We don't reveal these numbers and in any case there are no separate classifications for projects that are stalled," says R.S. Aggarwal, executive director, IDBI.

But off the record, FI officials admit that it's a problem-and it's growing. Over 200 incomplete projects are starved of second or third tranche funding. Last month, the Planning Commission asked FIs and banks to resolve problems concerning 206 large projects in coal, steel, petroleum, power and telecom which were stuck at the last stages.

SPIC PETRO, started in 1989, investment so far Rs 1,250 cr Project almost complete but final tranche of funds is awaited

DPC, started in 1994, INVESTMENT SO FAR rS 14,200 CR ($2.9B) Phase I complete but shut down; Phase II requires funding of around $200 m

The Essar Oil project at Jamnagar in Gujarat is a case in point. Promoted by the Rs 17,000-crore Essar Group, the project was conceived in 1993-94 as a Rs 5,350 crore nine million tonne per annum (MTPA) refinery. Since 1995, the Essar Oil project has undergone three reviews and its capacity has been enhanced to 12 MTPA, raising the cost to Rs 8,000 crore in 2000. Add to this disasters like the 1998 cyclone, the 2001 earthquake and the 2002 riots. Starting with a litigation blocking the usage of the IPO funds raised in 1995, the project has gone through a roller coaster of reviews, delays and what company officials describe as actions inspired by "competitive pressures". For instance, in 1999 when the company couldn't raise $142 million from the foreign market because of the post-Pokhran sanctions, it asked the institutions for bridge finance. Company officials say that while FIs had agreed to fund projects like MRPL and Haldia, they blocked Essar Oil's request. The alleged reason: a letter campaign by MPs-which Essar claims was done at the behest of its rivals-alleging violations. Company officials claim the allegations were found to be baseless. Result: the project, which company officials claim has been 64 per cent complete, is in limbo even as onsite machinery collects dust and the project incurs interest costs.

"Thanks to competitive pressures, big projects are stuck at the last stages, even as the economy suffers because of the drop in investments," laments Prashant Ruia, director, Essar Group. SPIC's Rs 1,250 crore project, in which institutions have sunk over Rs 900 crore, ATV Projects and the Modern Group's projects claimed by industry insiders to be hit due to pressures from rivals. And in most cases, they claim, the competition is the Reliance Group. Some promoters have been accused of diverting funds and of ineffcient management which has bloated project costs.

Of course, competition isn't the only reason behind stalled projects. Enron's Rs 14,200 crore Dabhol Power Company, in which FIs have invested Rs 6,000 crore, is caught in a quagmire of local politics and global scandal. The FIs are estimated to be losing close to Rs 2.5 crore a day. There are also cases where promoters have defrauded the system. In most cases it's a combination of factors. Kalpana Morparia, executive director, ICICI, explains that projects "conceived on the optimism of the mid-1990s have suffered because of the slowdown".

Ironically, FIs and banks are tempted to shut the tap even at grave risk to their own balance sheets. Helping them adopt this ostrich-like attitude is a critical lacunae in the asset classification. Till a project goes onstream there is no requirement for provisioning of non-performing assets. So even if a project is stalled for years, the money invested in it is treated as a standard asset, not a non-performing asset. In fact, the balance sheet bloats with accumulated interest. But as Vimal Bhandari, executive director, Infrastructure Leasing and Financial Services, says, "An incomplete project has practically zero economic value and is a drag on the economy."

Some corrective measures are being taken. Under the new corporate debt restructuring guidelines, if 70 per cent of the lenders agree, other lenders cannot stop the line of credit. Other remedies could be financial restructuring by lowering of interest rates or by an outright change in the management. India can ill afford these monuments of waste.

-with Ruben Banerjee and Vivek Law