Sick PSUs may get partners, forego central aid

NEW DELHI: Having failed to convince Left allies on divesting non-profitable PSUs, the UPA government is toying with a new turnaround strategy of partial disinvestment. The government plans to make induction of a strategic partner mandatory in the revival of any public sector enterprise (PSE). The partner could be from the public or private sector.

The government is also considering discontinuing the current practice of providing budgetary assistance to revive PSEs. Having formed a JV, the government may also provide a one-time fund in proportion to the company’s equity stake. Public sector companies would get preference over private companies as JV partners, an official source said.

The revival strategy is likely to become part of the policy on rehabilitation of sick PSEs currently being formulated. The ministry of heavy industries and public enterprises is the chief architect of the policy, which aims to ensure that profitability is maintained and revived firms do not turn sick again.

The fresh move follows the government’s bitter experience in restructuring sick PSEs. Though thousands of crore have been pumped into these units, very few have shown signs of revival. The government feels induction of JV partners would reduce the need for huge financial restructuring packages that would help it divert funds towards development of physical and social infrastructure.

Though the number of loss-making PSEs has come down from 105 in 2002-03 to 58 in 2005-06, these units made cumulative losses worth Rs 5,952 crore in that year. As per government regulations, a company is considered sick if its accumulated losses in any financial year equal 50% or more of its average net worth during four years immediately preceding that financial year or a company which is sick within the definition of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).

According to this definition, 81 central PSEs were identified as sick as on March 31, 2005, which were fit to be referred to the Board for Reconstruction of PSEs (BRPSE). Based on the recommendations of BRPSE, the government has approved revival schemes for 25 cases either as central PSEs or joint ventures.

The government’s total cash outflow is estimated at Rs 1,951.30 crore by way of equity/loan/grant and Rs 5,709.44 crore in non-cash by way of waiver of interest/loan/ guarantee fees or conversion of loan into equity. Among the companies being considered for revival are Hindustan Antibiotics, Bharat Pumps and Compressors, Heavy Engineering Corporation.