How govt's Rs 600cr vaccine complex failed to take-off
The government may be considering bringing in a partner in public-private partnership (PPP) mode to revive the Rs 600-crore Integrated Vaccine Complex (IVC) at Chengalpattu, Tamil Nadu, that’s struggling with a cash crunch and non-viability issues, sources privy to the information told Moneycontrol.
“It will remain as a government company, we will be giving the facility, and they will operate the facility and share the profits, that is the arrangement we are looking,” said a top executive of HLL Biotech Ltd (HBL) to Moneycontrol.
“The government thinking was, why should we be in the business of running a vaccine company, which should be left to the entrepreneurs,” the executive added. Getting a partner may not be easy, as Moneycontrol learned from sources that the government had reached out to various vaccine makers including public and private ones to strike a deal, but none had evinced interest.
A top executive of a vaccine company too on condition of anonymity confirmed he had received feelers from the government regarding the takeover of the IVC.“We weren’t interested because it will cost us three times to produce vaccines in that facility compared to ours,” the executive said.“Already there are excess capacities built by the industry, a pentavalent vaccine costs less than a water bottle, so the facility is not viable,” he said.
IVC is a sordid tale of a mega-project, involving hundreds of crore rupees of public money, becoming sick even before commencing operations. The liquidity problems exacerbated for IVC, as its promoter and parent HLL Life Care stopped the funding support for HBL.IVC was set up by HLL Biotech (HBL), a 100 percent subsidiary of public sector undertaking (PSU) HLL Life Care, to produce vaccines for the National Immunization Programme. It has been struggling to pay salaries to staff, interest to lenders and clear vendor dues.
The Thiruvananthapuram-based HLL Life Care, popularly known for condoms brands such as Nirodh and Moods, is itself going through the process of disinvestment, where the government wants to sell its entire stake in the PSU through an auction process.
HBL will be hived off as separate special purpose vehicle (SPV) from HLL before divestment, following which the government may bring in a strategic partner into HBL.
A project of national importance
Conceived during the days of the UPA-I government under then health minister Anbumani Ramadoss in 2008, the project was aimed at making India self-sufficient in vaccines.
The project received a major shot in the arm in 2012, with government declaring it as a project of national importance, promising an assured offtake of 75 percent of its production for government's Universal Immunisation Programme (UIP). This helps a project mitigate demand and marketability risks during its initial years.
IVC with a planned annual capacity of 585 million, had proposed to make Pentavalent combination, BCG, Measles, Hepatitis B, Human Rabies, Hib and Japanese Encephalitis (JE) vaccines in the first phase.
Its other intent was to replace the three ageing public sector vaccine units -- the Central Research Institute (CRI), Kasauli, the Pasteur Institute of India (PII), Coonoor and the BCG Vaccine Laboratory (BCGVL), Chennai, whose manufacturing licenses were suspended by the government for not meeting cGMP (current good manufacturing standards).
But right from the beginning, the project had naysayers.
The Parliamentary Standing Committee on Health and Family Welfare chaired by Brajesh Pathak, in its report in 2011, wondered over the need for a mega vaccine complex when the revival of the three PSU units should have met the objective.
“The Committee would like to emphasize once again, that there is a need for a review of the ambitious project of Integrated Vaccine Complex. If all the required support of every kind,- be it infrastructure, manpower, technical expertise, modern equipment and machinery is placed at the disposal of all the three units, the requirement of the proposed complex may perhaps not arise,” the report said.
The committee also raised questions over technical competence of HLL Life Care to handle a mega vaccine project.
Emails sent to Dr Mandeep Kumar Bhandari, Joint Secretary, Ministry of Health & Family Welfare (MoHFW) and Dharmendra Singh Gangwar, Additional Secretary of MoHFW, who are on the board of HLL Lifecare, and K Beji George, Chairman of HLL Lifecare remained unanswered at the time of publishing the story.
Cart before the horse
Interestingly, the government decided to pursue the project without having technologies in place to produce vaccines.
“The technology decides what the equipment should be, the technology decides what the flow of material will be, the technology decides what the design of the facility will be, so how will you build a plant without any technology,” said one of the executives mentioned above.
Given its lack of expertise in biotech, HLL Life Care was completely relying on consultants to get the work done.
“For, let’s say, a two-tonne boiler, they put up 5 or 6-tonne boiler. They built huge air-conditioned corridors between one facility to another and they created two, one for the man movement, the one for the material moment. But didn't realise that the materials cannot move without a man,” the executive said.
“As a result, it is poorly designed, very expensive to operate,” the executive added.
Rating agency ICRA had downgraded the Rs 309-crore term loan and Rs 175-crore Letter of Credits to ‘D’ rating indicating poor liquidity position.
“Due to substantial delays in project execution emanating from delays in getting approvals and incremental funding for cost overruns not being met by either the promoters or the additional loans, the company is unlikely to meet the revised COD of December 2019 (revised from Dec 2017), due to which the lenders have stopped the disbursement of pending tranche of loans,” ICRA said in its report.
“A funding tie-up, either in the form of additional loans or equity infusion by the promoters will be crucial for the company to regularise debt servicing and complete the project,” the report added.
The HBL executive said the government is aware of the matter and is trying to working out a solution very soon.
Meanwhile, HBL is trying to work some arrangements with Biological E to be there fill and finish partner for the vaccines produced by the latter. They are also trying to manufacture products like Oxytocin and oral polio vaccine (OPV) for survival.
HBL is now banking on the assured offtake of 75 percent of production offtake by the government, to attract partners.