The Hindu Business Line : Divestment Ministry sees little merit in EIL sell-off

IRONIC, it may seem, but for the first time in the brief history of disinvestment of public sector undertakings, the Ministry of Disinvestment (MoD) plans to stall the sell-off of a profit-making PSU - Engineers India Ltd (EIL).

"We feel that the EIL will lose value if the company is privatised in an environment where a section of the Government opposes privatisation of oil marketing companies on the ground that they are strategic in nature. About 90 per cent of EIL's business is derived from petroleum sector and of this 50 per cent is on a negotiated basis," a top MoD official said. "We have discussed our stand with the Petroleum Ministry and will be shortly writing to them on the issue," the official added.

"In such an environment, once EIL is privatised, the public sector units can no longer indulge in the erstwhile incestuous relationship and all contracts will have to be bid out. This means that EIL will lose business and there will be erosion in value. The upshot of this development will mean that disinvestments will earn a bad name with few people realising that the sell-off has little to do with the bad news!" the official added.

The EIL sell-off is in the final stages with bids set to be invited following the Petroleum Minister, Mr Ram Naik's agreeing to the privatisation of EIL since it was not "strategic" in nature. Mr Naik had successfully stalled the sell-off of Hindustan Petroleum Corporation Ltd and Bharat Petroleum Corporation Ltd (BPCL) in early September this year on the ground that they were "strategic" in nature.

EIL was one of the few public sector units that did not suffer in the recent spate of setbacks in the disinvestments process when several political parties led by the National Democratic Front Convener and Defence Minister, Mr George Fernandes, besides the RSS opposed the sell-off of HPCL and BPCL.

The strategic sale of 51 per cent equity of EIL at current prices could fetch up to Rs 900 crore. The stock, which rose from a modest Rs 70 in January this year to the Rs 350 per share band in August, is currently trading in the Rs 260-Rs 265 region.

EIL, a public sector unit set up in 1965, provides consultancy services in the field of petroleum refineries, pipelines, oil and gas processing, ports and terminals. It is currently diversifying into highways, bridges, airports, etc.

The company recorded a revenue drop of Rs 540 crore during fiscal 2001-02 over the previous year's figure besides a 35 per cent drop in net profits to Rs 12.04 crore due to postponement of huge orders. The company has reserves to the tune of Rs 660 crore.

Sometime ago, the Petroleum Ministry had written to the Ministry of Disinvestment seeking stripping of around Rs 500 crore of free reserves of EIL prior to its proposed privatisation.

This move was aimed at averting a VSNL-like situation where, post-privatisation, the strategic partner, the Tatas, sought to utilise the free reserves for their other operations.

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