Closed Nokia plant looks for buyers but problems remain
Legal disputes, lack of an ecosystem for smartphones and personnel availability are challenges
As speculation swirls that Micromax, HTC and Chinese mobile handset manufacturer Xiaomi are eyeing the idle Nokia plant at Sriperumbudur near Chennai, experts say buyers will have to negotiate legal disputes, the lack of a smartphone supply chain and manpower issues.
The Sriperumbudur factory was one of Nokia’s most productive plants globally. Its operations have been suspended after Nokia had to leave the plant out of the $7.5-billion sale of its devices business to Microsoft in April.
The income tax department had seized the factory last year claiming Rs 21,000 crore tax from Nokia over software downloaded on handsets assembled at the unit since 2006. In March 2013, the tax authorities had served a notice on Nokia India for allegedly wrongfully claiming exemption on royalty payments made against supply of software by the company’s parent firm for five years starting 2006-07. The first notice was for Rs 2,000 crore and the total demand, including previous years’ arrears and interest, would go up to Rs 21,000 crore, tax officials said.
The tax department can also impose a fine of 100-300 per cent of the total tax due. Apart from the I-T department, the Tamil Nadu government has issued a Rs 2,400-crore sales tax notice to Nokia India.
Unless Nokia India settles the disputes through court or by paying the claims or getting its parent to guarantee against unspecified potential tax liabilities, the plant’s saleability remains in question. Sources said the central government was planning to tell Nokia the matter would not be resolved under a bilateral investment protection agreement with Finland because the treaty did not cover taxes.
Buyers will also have to consider the equipment available at the plant. Most of the investors whose names are floating around are focused on smartphones, while Nokia’s Sriperumbudur factory can only produce feature phones. A buyer will need to invest in new machines and on creating a supply chain for smartphones. Nokia and its suppliers had invested close to Rs 1,800 crore over the years on the plant and on an ecosystem to support the unit that assembled, but did not make, mobile phones.
A third challenge will be human resources. Nokia and its suppliers employed around 30,000 people, directly and indirectly. Nokia alone employed 8,000 people, of whom 60 per cent were women. Most of the factory’s workers are from outside Tamil Nadu and have relocated since Nokia introduced voluntary retirement in April. There are also around 200 workers who have refused to resign.
Finally, the valuation of the plant is not clear. Nokia once told the Supreme Court the factory was valued around Rs 3,000 crore, but it did not elaborate who valued it and on what basis. The factory generated revenue of Rs 1.51 lakh crore between fiscal 2007 and 2013.
UNSOLVED HURDLES
Unless Nokia India settles the tax disputes through court or by paying the claims or getting its parent to guarantee against unspecified potential tax liabilities, the plant’s sale remains doubtful
Most investors whose names are floating around are focused on smartphones, while Nokia’s Sriperumbudur factory can only produce feature phones
