Govt looks to reform financial planning of PSUs

NEW DELHI: For years, public sector companies would just sit on cash without any solid investment plans. That has changed over the last couple of years when they are being prodded to invest or transfer the surplus. And, now financial planning is moving to the next stage where consolidation is being recommended for state-run companies across sectors.

While the process has already started for oil, construction and consulting companies, power, defence and other sectors could be the next focus areas as the department of investment and public asset management (DIPAM) goes about making central government-owned firms more financially nimble.

The rationale is simple: There are multiple entities in the PSU space and economies of scale are not playing out in the market. So, instead of having 18 consulting firms ranging from Engineers India to Projects & Development India (PDIL) to Telecom Consultants India (TCIL), the idea is to create an agency that can provide advisory services like the Big Four consulting firms. “The focus is departmental, not commercial,” explained an officer.

In the past, consolidation had not been driven by companies, prompting the government to take the lead through a Budget announcement by finance minister Arun Jaitley, although the focus had seemed to be limited to the petroleum sector. State-run ONGC seemed to immediately respond by offering to acquire Hindustan Petroleum to put in place a vertically integrated oil company, something that is missing even in the private sector. Discussions are now under way to explore other options in the oil sector and down-the-line consolidation could be considered for the insurance sector, similar to the ongoing process in the banking sector.

“More options will come to the surface, driven by economic rationale,” said a source. For instance, companies in the defence sector that supply some components to a PSU have informally been advised to take over another vendor given the strategic nature. This type of consolidation will not just help a PSU use idle resources at its disposal, instead of merely paying higher dividend, but it will also enable it to tap technology that is locally available.

Similarly, in the power sector, for example, there is a proliferation of PSUs and some of the consolidation can help address duplication and create a value chain.

At the same time, the strategic disinvestment programme is also being tailored in a way that some of the companies are part of the consolidation process. For instance, PDIL stake sale is open to PSUs such as EIL, while some of the companies in the construction sector are being offered to other players, keeping in mind future role of NBCC.