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Divestment panel advocates sale of STC and Hind Steel Works, laments govt indifference

George Varghese in New Delhi

The Disinvestment Commission has recommended the sale of the State Trading Corporation to a strategic buyer and closure of the Hindustan Steel Works Construction Limited.

The commission, however, is sore at the treatment meted out to it by the government.

The government has not taken any decision on the commission's recommendations on 19 public sector units even after more than two years. The government has also not heeded to its demand for the restoration of its supervisory and monitoring powers taken away in January last year.

On the other hand, commission chairman G V Ramakrishna said the government has gone ahead with disinvestment in several cases without any consultation with the commission, contrary to government's own decision made in September 1997 that all future disinvestment of PSUs should be done only after getting the recommendation of the commission.

Currently, the government is in the process of major disinvestment of oil companies through cross-holdings and is also contemplating disinvestment in Indian Airlines. The commission has not been consulted for advice on these disinvestments, he said.

All this has seriously eroded the credibility of the disinvestment process and the commission, and has led to the public perception that the commission has been marginalised, he said.

The commission has also not been allowed to create awareness about the strategic sale of PSUs through any publicity, he alleged.

Ramakrishna hoped that the government would pay urgent attention to the outstanding issues and take corrective measures to create the necessary conditions for rapid, transparent and credible disinvestment process.

Referring to the commission's recommendation on STC, carried in its ninth report submitted to the government on Friday, Ramakrishna said that no public purpose would be served by STC being under the government ownership and control.

Classifying it as a non-core company, the commission felt that STC's viability as an enterprise under government ownership and management was doubtful.

The government has only two options for disinvesting its holding in STC -- through a strategic sale to a bidder from a group of pre-qualified bidders through global competitive bidding and transfer of management or closure, the commission said.

STC could be shut down after offering an attractive compensation package as provided under the law to the employees and the cost of the closure could be met out of the realisation of assets, it said.

However, the commission preferred sale of STC to a strategic buyer after reserving five per cent share for employees who opt for voluntary retirement scheme, at the rate of not more than 200 shares per employee.

This could be at a discount to the strategic buyer's price as this would provide continuation of the trading operations under private ownership and management with sustainable level of employment, it said.

With the comfort of operating in a protected environment, no longer available, STC has faced declining profitability and margins, the commission noted. Its role as a canalising agency of the government was rendered meaningless and its primary activity of import and export of canalised items reduced significantly, it said.

Narrating the areas of concern, the commission said the PSU status of STC hampered in quick transition and appropriate organisational culture to cope with the changing competitive environment. It has failed to keep abreast of the latest developments and is woefully under-computerised.

High dependence on government trade, over-manning with adverse skill profile, weak balance sheet and lack of client base are other areas of concern, according to the commission.

Regarding HSCL, the commission said its accumulated loss was Rs 11.01 billion as on March 31 last and its tangible networth has been fully eroded. A large labour force, weak balance sheet, lack of orders and lack of diversification plans are the areas of concern about this PSU.

If the government does not find it feasible to close down the enterprise, the only other alternative is to continue the enterprise by meeting recurring annual cash losses of around Rs 700 million per year, after meeting the statutory liabilities of about Rs 1.36 billion, the commission said.

In this case, there should be a clear understanding that there would be no fresh recruitment or replacement of retiring employees, it said.

Ramakrishna said the commission's specific and general recommendations should not be filtered by official groups but should be placed before the Cabinet to enable the government to appreciate the inter-connected strategy of the various recommendations. The chairman of the commission might be invited to the Cabinet meetings to offer necessary clarifications.

In the earlier reports, the commission had asked for restoration of its supervisory and monitory powers as without these powers, the commission would become ineffective. He regretted that the government has not taken any decision on this so far.

The recommendations for giving a big push to strategic sale of PSUs have also not met with success, he said. Similar is the fate of the recommendation for setting up a full-time implementation machinery for enabling speedy and timely implementation of disinvestment decisions of the government, he said.

UNI

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