Cash-rich PSUs like ONGC, Coal India, NTPC, SAIL and Bhel are averse to buying back their shares from the government to help it meet the disinvestment target. Speaking to FE, these companies, which have lined up massive investment plans, said they were not inclined to compromise on their operational freedom and risk growth prospects. They may, however, pay heed to the promoter?s expected request for handsome interim dividends, a measure that could stand the Centre in good stead to fill the black hole in its finances.

The current financial year has been marked by duty cuts on petroleum products, higher subsidy burden and lower tax receipts, all factors that could combine to make it difficult for the government to keep its 4.6% fiscal deficit target in a slowing economy.

The government is toying with the idea of persuading cash-rich public sector enterprises to buy back their shares from it, given the difficulty to raise funds through public offers in uncertain markets. Against the fiscal’s disinvestment target of R40,000 crore, the government could raise only R1,145 crore so far from selling shares of Power Grid Corporation of India.

A finance ministry official said a proposal for buyback of government’s shares by PSUs is being internally discussed.

Buying back shares will shrink the equity base of the PSUs, but will improve earnings per share. Although this could come as a temporary relief to the fiscally stressed government, the wisdom behind the move is questioned by many analysts.

Buyback doesn’t serve the stated purposes of disinvestment such as enhancing the efficiency of operations of PSUs, imparting more competition and catalysing technology adoption, they say.

It may be mentioned that the NDA government in 1999 had tried the same track to raise revenues, a move which fell through.

The ministry will also indicate to all PSUs soon to declare interim dividends higher than last year’s. The government had mobilised over R10,000 crore as interim dividend last year with companies declaring interim payout in the range of 30-233%. North Block hopes to better this record this year.

ONGC, which has a cash reserve of about R20,000 crore has investment plans lined up. ?We have not received a proposal from the government on share buyback. We do have long-term investment plans on (oil and gas) field development,? said a person privy to the company’s thinking. ?If we return the money, the company will shrink, which is not good for the energy sector,? said another person associated with the exploration giant. The government’s plan to sell 5% stake in ONGC was deferred at the eleventh hour last month.

The country’s largest refiner Indian Oil Corporation, which is also on the divestment list, has almost no cash reserves. At the end of the last financial year, the company maintained R1,284 crore as cash and bank balances. ?We are not a cash-rich company. Our borrowing (which was at R52,734 at the end of last fiscal), has now gone up to R70,000 crore on account of under-recovery on the sale of fuel,? said a person close to the IOC management.

Several PSU officials said they were yet to receive any finance ministry communication on the buyback proposal, but they do anticipate an informal communication on a liberal dividend issue. While PSUs are comfortable with the idea of paying higher interim dividend, the share buyback plan has not gone down too well with most of them.

?We may be having close to R50,000 crore as cash reserves, but the money is required to fund huge expansion costing about of R40,000 in the 12th Five-Year Plan starting 2012. The reserves will also help the company save interest outgo at a time when borrowing costs have gone up substantially,? said an official with Coal India.

Similarly, NTPC, SAIL, Power Grid Corporation and NHPC have large investment plans for the coming years, requiring capital from their own resources to keep the overall investment cost low. While NTPC is sitting on a cash reserve of around R17,000 crore, SAIL has reserves of R15,000 crore, NHPC R4,000 crore and Bhel about R10,000 crore.

?The government should not dip into our resources by seeking a buyback of its shares and higher interim dividend. Companies should be given a chance to choose,? said a PSU official who declined to be identified.