From shutdown of losers to strategic sales, Centre in action mode on reforming PSUs

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New Delhi | Updated: September 29, 2016 7:53:24 AM

Having set an ambitious target to raise R20,500 crore from strategic disinvestment in PSUs this fiscal, the Modi government has now kick-started the process by putting on the block Allahabad-based PSU Bharat Pumps and Compressors (BPC).

Having set an ambitious target to raise Rs 20,500 crore from strategic disinvestment in PSUs this fiscal, the Modi government has now kick-started the process by putting on the block Allahabad-based PSU Bharat Pumps and Compressors (BPC). (PTI)Having set an ambitious target to raise Rs 20,500 crore from strategic disinvestment in PSUs this fiscal, the Modi government has now kick-started the process by putting on the block Allahabad-based PSU Bharat Pumps and Compressors (BPC). (PTI)

Having set an ambitious target to raise Rs 20,500 crore from strategic disinvestment in PSUs this fiscal, the Modi government has now kick-started the process by putting on the block Allahabad-based PSU Bharat Pumps and Compressors (BPC). In line with the NITI Aayog’s proposal that loss-making PSUs like BPC be helped to liquidate some of their liabilities before being offered to strategic investors, the Cabinet on Wednesday approved a Rs 112-crore loan to the company to settle its statutory dues such as provident fund and gratuity of retired employees.

BCC, which makes heavy-duty pumps, compressors and CNG gas cylinders, has been in losses for the last few years (see chart): Its net worth turned negative in March 2005 (-R121 crore) but reported a turnaround briefly, only to plunge into losses again. Heeding the NITI Aayog’s view that PSUs that are sure-fire losers should be shut down, the Cabinet also approved the closure of Kolkata-based Hindustan Cables, a perennially sick company, at a cost of R1,310 crore to the exchequer.

NITI Aayog, which has been made the nodal agency to identify the PSUs for sale/closure, is understood to have identified 44 companies for strategic disinvestment and 26 loss-making PSUs for closure. Although an exhaustive list of the PSUs to be privatised is not available, eight loss-making ITDC hotels — the ones in Bhubaneswar, Puri, Jaipur, Jammu, Guwahati, Ranchi, Puducherry and the Lalitha Mahal hotel in Mysuru — are sure candidates for privatisation.

Other companies that could be sold off include Tyre Corporation of India, Cement Corporation of India, HMT Bearings and Richardson & Cruddas. The land holdings of these companies would be monetised too. (Last week, the Cabinet had given approval for strategic disinvestment of the Nagpur and Chennai units of Richardson & Cruddas.)

As the Modi government revisits its aggressive privatisation policy, it would be a throwback to history. Although disinvestment in the country can be traced to the United Front government which set up the Disinvestment Commission in 1996, it was the NDA government led by Atal Bihari Vajpayee that set the privatisation process in motion and managed to sell 18 ITDC hotels during 1999-2004, bringing down the number of state-run hotels from 34 to 16. The Vajpayee government also sold more than a dozen PSUs to private companies, the most notable ones being IPCL, which was sold to Reliance Industries, and Bharat Aluminium Company and Hindustan Zinc, both of which went to Vedanta Resources.

After missing disinvestment targets for six years, the government could exceed the target for the current fiscal. The Budget estimate for disinvestment comprises Rs 36,000 crore from sale of minority stakes in PSUs and Rs 20,500 crore from strategic disinvestment. The government has raised Rs 3,183 core so far in 2016-17 via disinvestment in NHPC and sale of small portions in Indian Oil Corporation and NTPC to their employees. As reported by FE earlier, 30 cash-rich PSUs including ONGC, NTPC, Power Grid Corporation, ONGC Videsh and BHEL will start buying back a portion of their own shares during this financial year, a process that would boost the Centre’s non-debt capital receipts. While the buyback policy could potentially fetch the government, the majority owner of the PSUs, around Rs 80,000 crore over a period of time, in the current year some Rs 14,000 crore could be mobilised by it via this route.

According to a government statement, the Rs 112-crore loan to BPC “will motivate the employees and improve the performance of the company”. Closure of Hindustan Cables comes at a cost of Rs 1,310 crore to the government due to the conversion of Rs 3,467 crore of loans into equity. The government will offer attractive voluntary retirement scheme at notional 2007 pay scales for Hindustan Cables employees and meet other employee-related liabilities including payment of salary and wages from April 2015. The disposal of assets of company will be in terms of the guidelines of Department of Public Enterprises.

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