Has the Government hoodwinked opposition parties, workers on PSU privatisation?

P Manoj Mumbai | Updated on March 25, 2019

The four port trusts, the new owners of DCI, are also not allowed to retrench employees of DCI for one-year beginning March 8. File photo   -  The Hindu

PSU to PSU strategic divestment a round-about route to privatisation

The NDA government was unsuccessful in privatising a state-run firm during the five-year rule despite a penchant for it fearing political backlash. But they have sowed the seeds for a relatively trouble-free sale later on with the help of strategic divestment involving public sector undertaking (PSU) to PSU deals.

Selling one PSU to another, contrary to perception, will alter the character and status of the PSU sold, said government sources. For instance, Dredging Corporation of India (DCI), in which the Centre sold its 74.47 per cent stake to four major port trusts for Rs 1,049 crore, is no longer a central public sector enterprise (CPSE) and hence will not be subjected to the guidelines framed by the Department of Public Enterprises (DPE).

Visakhapatnam Port Trust, Paradip Port Trust, Jawaharlal Nehru Port Trust and Deendayal Port Trust are together barred from selling DCI shares for three years beginning March 8, 2019, according to a Share Purchase Agreement (SPA) signed between the Centre and the four major port trusts on that day.

The four port trusts, the new owners of DCI, are also not allowed to retrench employees of DCI for one-year beginning March 8.

Such lock-in periods for the sale of shares and retrenchment clauses have been prescribed in the case of the ONGC-HPCL deal as well as those involving NBCC-HSCC and PFC-REC. It will be stipulated in all such future transactions also.

But, nothing prevents ONGC, NBCC, PFC and the major port trusts from selling their stakes in HPCL, HSCC, REC and DCI after the lock-in period ends. That is mainly their call, though these entities are controlled by the Centre who can still call the shots in such sales.

But, a political dispensation with an inclination towards privatisation, is unlikely to block such sales, particularly when it has invented a smart way to boost the disinvestment kitty by asking cash-rich PSUs to buy some among their fraternity without incurring the wrath of the opposition political parties and workers unions.

The recent decision by the Reserve Bank of India (RBI) to tag IDBI Bank as a private lender bear this out. Unlike the above deals, LIC did not sign a share purchase agreement with the Centre while acquiring a controlling stake of 51 per cent in IDBI Bank because the government did not sell its shares to the state-run insurer.

LIC, in fact, bailed out IDBI Bank by subscribing to fresh shares issued by the financially stressed lender and through market purchases. In the process, LIC had to secure a special dispensation from the Insurance Regulatory and Development Authority of India (IRDAI) because insurers are by law not allowed to hold more than 15 per cent stake in a bank.

RBI’s decision to label IDBI as a private lender came much before LIC pared its holding in the Bank to 15 per cent, drawing the ire of the employees and unions.

The DCI stake sale is a peculiar case. The Government sold its holding in DCI to four autonomous bodies that are functioning as trusts which are not bound by the DPE guidelines. Because, the seed capital for setting up these port trusts were given as grant by the Government and not as shares. This explains why the port trusts don’t pay any dividend to the Government.

“After the Government of India sold its shares in DCI to the four major port trusts, DCI has ceased to be a CPSE; that’s the whole idea behind strategic disinvestment,” said a top bureaucrat. “DCI will be managed by its board comprising nominees from the four port trusts who will decide its rules and regulations as per the Companies Act,” he said asking not to be named.

With its new owner not a PSU in the strict sense of the word, DCI has also lost its PSU and mini ratna status. This is not the case, though, with the other deals because ONGC, NBCC and PFC are owned by the government and hence HPCL, HSCC and REC will continue to be subjected to DPE norms.

Yet, their vulnerability to privatisation has increased, government sources added.

Published on March 25, 2019

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