State cos told to pay extra dividend

NEW DELHI: The finance ministry has asked select public sector enterprises to declare special dividend for the current financial year as it struggles to raise resources for additional spending including higher-than-budgeted subsidies.

The directive comes days before these companies meet to finalise results for the October-December quarter. Most state-run companies announce hefty interim dividends ahead of the budget, but this time the government is looking for something extra.

“The government is looking for additional dividend from some PSUs,” an official with a central PSU said.
Finance ministry officials met PSU chiefs to discuss the issue. The companies called for consultation include steelmaker SAIL, Power Grid Corporation and Power Finance Corporation.

“The company will examine how much it can shell out,” said senior official with another PSU who attended the meeting.

In 2005, the finance ministry had advised all commercial profit-making public sector enterprises to declare a minimum dividend on equity of 20% or a minimum dividend payout of 20% of post-tax profits, whichever is higher, subject to availability of disposable profits. In respect of oil, petroleum , chemical and other infrastructure sectors, this amount would be 30%.

Besides, profit-making companies with large cash surpluses and without firm plans for reinvestment were asked to declare special dividends. Steel major SAIL has already said it will consider an interim dividend at its board meeting on January 13 that will consider results for October-December quarter. The company had declared a dividend of Rs3.3 a share last year.

The state-run companies declare these dividends very reluctantly as most of them have expansion plans and need these earnings for investment. Despite bearing a huge subsidy burden, the oil marketing companies have declared hefty dividends last year.

The government has proposed an additional expenditure of Rs75,000 crore through two supplementary demands and has also said it will borrow Rs10,000 crore less.

It now needs the extra funds to be within the budgeted fiscal deficit of 5.5% of the gross domestic product as it battles rising subsidy burden.

The recent rally in the crude prices means the government will have to pay a larger amount to oil marketing companies for selling diesel, cooking gas and kerosene at prices below cost. The finance ministry had budgeted . 3,108 crore towards petroleum subsidy. It has already provided another Rs14,000 crore in the first supplementary demand, but the petroleum ministry has sought immediate release of additional Rs10,000 crore to compensate oil companies for higher losses as global crude prices crossed $90 a barrel.

The department of fertiliser has also sought Rs30,000 crore more in subsidy following a rise in international fertiliser prices.

The food subsidy bill is also expected to be Rs25,000 crore higher than the budgeted Rs55,000 crore.