Sick PSUs must revive within 2 yrs of aid or fold up

NEW DELHI: Revival of sick PSUs would now be conditional. The government would consider closure of units that do not show signs of revival within two years receiving fresh funds.
The ministry of heavy industries and public enterprises is finalising new guidelines for restructuring central public sector enterprises (CPSEs) under which perpetual loss-making entities would be recommended for closure. Money would be spent for revival of such units only on the condition that they would achieve a certain level of profit in two years, an official source said.

If implemented, the new norms may sound the death knell for CPSEs such as Hindustan Antibiotics (HAL) and Andrew Yule and Co (AYCL). These companies would be left with just one year to show signs of revival.

The government had approved a revival package of over Rs 860 crore for the two PSEs in 2005-06. While HAL reported a net loss of about Rs 25 crore in 2006-07, AYCL’s net loss is about Rs 73 crore. “If losses continue even for the current fiscal, the two CPSEs would become a fit case for closure,” an official source said.

Two other CPSEs, Hindustan Organic Chemicals (HOCL) and Hindustan Insecticide (HIL), may also come under pressure as their earnings in 2006-07 have been below expected levels. Against a targeted profit of about Rs 10 crore, HOCL earned Rs 7 crore during 2006-07 while HIL also registered a marginal fall in profit from the targeted levels. The source said if the market turns adverse, several companies trying to revive may sink into the red again.
The closure orders would be given only in cases where companies do not turn around and continue to make losses despite infusion of fresh funds, it said.

The proposed move is aimed at making the government’s restructuring exercise meaningful and ensuring funds are used in a productive manner. It would also help the government save on big-ticket restructuring of sick companies and divert the funds for the development of physical and social infrastructure.

Based on the recommendations of the board for reconstruction of public sector enterprises, the government has so far approved revival schemes for 25 cases either as CPSEs or joint ventures.

The total cash outflow from the government 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 and conversion of loan into equity.