PSUs find it tough to maintain capex

Written by Noor Mohammad | Noor Mohammad | New Delhi | Updated: Oct 21 2014, 09:43am hrs
CapexWith private investment falling off, a host of cash-rich central public sector enterprises (CPSEs) have taken up the slack.
With private investment falling off, a host of cash-rich central public sector enterprises (CPSEs) have taken up the slack. Their scaled-up spending on capacity expansion has prevented growth in fixed investments from turning flat or even negative. A review of the capex achievements and plans of some major CPSEs by FE has revealed that they have more or less weathered last few years investment torpor and in some cases even overshot the targets.

However, each of these PSUs are confronting problems largely specific to the sectors they belong to and could falter in coming years unless policy anomalies are corrected and, in some cases, a helping hand is extended by the government.

CPSEs combined cash reserves stand at R3 lakh crore and given last years capex performance of R2.4 lakh crore and a similar amount proposed to be invested in the current year, the total capital investments by them in the current (12th) Plan period up to FY17-end could be in excess of R10 lakh crore.

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As for individual companies, ONGC, despite being constrained by the subsidy burden and an unremunerative gas price, seems on course to achieve a R1.64-lakh-crore capex programme for the current Plan, including the investments by its subsidiaries. Similarly, power generator NTPC may not miss its capex target of R1.5 lakh crore by much, nor will Power Grid Corporation with a plan of R1.1 lakh crore. Indian Oil (R71,846 crore), SAIL (R45,000 crore) and BPCL (R20,000 crore) may even perform better than planned, given their capex spending in FY13 and FY14 and the investments in the pipeline.

After a second straight year of decline in growth through 2013-14, fixed investments, as reflected in the gross fixed capital formation (GFCF) data, expanded in double digits in the first quarter of this fiscal at 11.2% from a year ago, compared with just 2.2% in the previous quarter (Q4, 2013-14). Having risen 18.9% in 2011-12, the highest since the 2008-09 global financial crisis, GFCF growth slowed to just 7.4% in 2012-13 from a year earlier and a meagre 4.5% in the last fiscal. The incipient revival in private investment will be helped by PSUs capex plans, helping economic recovery.

SAIL has also chalked out plan to make additional investment of R1.35 lakh crore between 2016-17 and 2024-25 to ramp up its manufacturing capacity from 24 million tonnes to 50 million tonnes. PSUs are rich in cash and can also mobilise resources from outside to finance their capex plans,, said UD Choubey, director general, Standing Conference of Public Enterprises, said.

After the economys lacklustre performance in FY12, the then (UPA) government leaned on cash-rich PSUs to step up investments. The PMO put on radar 17 CPSEs for monitoring of capex plans in FY13. Against a target of R1.41 lakh crore investment, these firms unveiled capital expenditure of R1.1 lakh crore inFY13, achieving nearly 80% of the target, and in the subsequent year these investments increased to R2.4 lakh crore.

However, problem areas remain. For example, NTPC is likely to take a big hit on its profits this year due to stringent operational norms stipulated by the electricity regulator. Recently, NTPC lost more than half a dozen captive coal coal blocks due to blanket deallocation by the Supreme Court and the development could adversely affect the companys capex plans. Power equipment supplier BHEL is struggling for fresh orders as the electricity sector remains in the doldrums. The coal block deallocation could lead to further drying up of orders for the PSU. Hydropower major NHPC is finding the going tough due to environmental hurdles. However, oil PSUs are looking up because of the deregulation of diesel price and renewed emphasis on direct benefit transfer for LPG subsidy disbursal.

According to Devendra Kumar Pant, chief economist, India Ratings, implementation of capex plans by CPSEs will depend on sectoral demand. For instance, he said, SAILs capacity expansion programme would hinge on steel demand from infrastructure and automobile sectors.