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  1. Government to examine proposal to merge CPSEs in key sectors

Government to examine proposal to merge CPSEs in key sectors

In a recent presentation to Prime Minister Narendra Modi, the CPSEs have proposed creation of public sector behemoths by merging firms.

By: | New Delhi | Published: May 8, 2018 5:04 AM
NTPC, CPSE, Rural Electrification Corporation NTPC, the largest thermal power producer in India, has also ventured into the hydro power generation business and a merger with hydro power firm NHPC would be synergistic. (IE)

In what could push consolidation of central public sector enterprises (CPSEs), the government will examine a proposal to merge NHPC with NTPC and combine Power Finance Corporation (PFC), Rural Electrification Corporation (REC) and Indian Renewable Energy Development Agency (IREDA) to create a huge power-financing entity.

In a recent presentation to Prime Minister Narendra Modi, the CPSEs have proposed creation of public sector behemoths by merging firms based on commonalities of functions to benefit from economy of scale, global competitiveness and access to cheaper capital.

Among others, the CPSEs have also proposed merger of telecom sector entities Bharat Sanchar Nigam (BSNL), Mahanagar Telephone Nigam (MTNL), Bharat Broadband Network (BBNL) and RailTel Corporation.
“These (proposals) are kind of first takes based on commonalities of functions and scopes for merger. However, a detailed analysis needs to be done (on how the sectoral consolidation could work out),” an official told FE.
These mergers, if carried out, won’t be buyouts (like the recent ONGC-HPCL deal), but would be through share swaps, another official said. In March, ONGC bought the government’s 51.1% stake in HPCL for `36,915 crore, helping the Centre mop up Rs 1 lakh crore in disinvestment revenue in FY18.

Integration of CPSEs engaged in the same business would limit the number of CPSEs in a sector and create profitable entities which will have capacity to bear higher risks, take higher investment decisions and create more value for stakeholders, officials reckon. Bigger entities would be able to compete globally to acquire assets and raise cheaper funds, reducing their dependence on the
government.

NTPC, the largest thermal power producer in India, has also ventured into the hydro power generation business and a merger with hydro power firm NHPC would be synergistic. NTPC’s net profit in FY17 was rs 9,385 crore while that of NHPC stood at Rs 2,796 crore. Both the power generating firms are listed on the stock exchanges.

Similarly, an amalgamation of three profitable power financing firms — PFC, REC and IREDA — could allow leveraging of common resources. Except IREDA, the other two are listed on the stock exchanges.
However, there could be challenges in merging telecom CPSEs as both BSNL and MTNL are making huge losses and saddled with large manpower costs. An earlier proposal to merge both the CPSEs had hit hurdles. BBNL and Railtel are smaller firms with modest manpower.

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