Undeterred by recent setbacks in its divestment efforts, the Narendra Modi government appears determined to stay the course. Its decision empowering companies or public sector enterprises (EPS) to carry out all divestments in their subsidiaries, units, etc., suggests this will.
Life Insurance Corporation’s long-awaited initial public offering (IPO) opened about 8% lower on exchanges on May 17. As Bizz Buzz reported earlier, the privatization of BPCL has been put on hold. They say it’s because there was only one bidder for the oil major.
While the divestment in Shipping Corporation of India (SCI) is underway, doubts are being raised that the deal will be possible this calendar year. The Secretary of the Department of Investment and Public Assets Management (Dipam), Tuhin Kumar Pandey, however, said it could be done.
The Council of Ministers on Thursday approved the proposal to empower the boards of directors of the holding or parent PSEs to recommend and undertake divestment (both strategic divestment and sale of minority stake) and closure of the any of their subsidiaries, units and joint venture interests, a government statement said. “The Cabinet has also empowered the Alternative Mechanism to grant ‘in principle’ approval” to such divestment.
The Alternative Mechanism is a group comprising Finance Minister Nirmala Sitharaman, Road Transport and Highways Minister Nitin Gadkari and Civil Aviation Minister Jyotiraditya Scindia.
The process for carrying out strategic divestments and closures to be followed by PES should be open, based on the principles of the call for tenders, and in accordance with the guiding principles to be defined, the statement said. For strategic divestment, such guiding principles will be defined by Dipam. For closing, the Department of Public Enterprises will issue guiding principles.
Currently, boards of directors of ESPs in the Maharatna, Navratna and Miniratna categories can take equity stakes to establish financial joint ventures and wholly-owned subsidiaries and undertake mergers and acquisitions, subject to certain net worth limits. . However, boards of directors do not have the power to divest and close their subsidiaries, units, etc.
Only Maharatna PSEs have certain limited powers, including for sales of minority stakes in their subsidiaries. Therefore, PSEs needed government approval for divestment (both strategic divestment and sale of minority stakes) in and closure of their subsidiaries.
The decision to empower PES boards aims to reform the operation of PES “will result in rapid decision-making and saving of unnecessary operational/financial expenditure by PES,” the press release said.
This will help big PES like LIC, Coal India and ONGC to sell their subsidiaries. It is quite honorable of the Modi government not to have been discouraged or intimidated by various obstacles to the privatization process. It’s not just market conditions – BPCL’s sole bidder, lukewarm response to LIC’s IPO – that are slowing the selling process; there are also challenges in other areas.
On November 18, the Supreme Court ordered the Central Bureau of Investigation to file a case to investigate alleged irregularities in the privatization of Hindustan Zinc Ltd. Thus, the government had to register a first information report (FIR). Then there are public intellectuals and loud union leaders who constantly slander the privateers. The government must remain firm in its efforts to privatize PSCs.