6

DISINVESTMENT AND PRIVATISATION

competition, not decrease it. It will not support the emergence of any monopoly that only restricts competition. It also believes that there must be a direct link between privatisation and social needs - like, for example, the use of privatisation revenues for designated social schemes. Public sector companies and nationalized banks will be encouraged to enter the capital market to raise resources and offer new investment avenues to retail investors. The chronology of evolution of the policy on disinvestment since 1991-92 is given in Annexure-I. Disinvestment of Government equity in Public sector began in 1991-92. Till 1999-2000, it was primarily through sale of minority shares in small lots. From 1999-2000 till 2003-04, the emphasis of disinvestment changed in favour of Strategic Sale. At present, the emphasis is to list, large, profitable CPSEs on domestic stock exchanges and to selectively sell small portions of equity in listed, profitable CPSEs (other than the navratnas). Further all proposals by CPSEs to tap capital markets to raise funds would be considered on a consultative case by case basis. The proceeds from disinvestment and related transactions from April, 1991 to March 2006 amounted to Rs.49,241.29 crore. Details of the annual realization and the methodologies adopted are given in Annexure-II. At present 44 CPSEs are listed on the Stock Exchanges. The market capitalization of 41 listed CPSEs as on 31.3.2006 or on the date before it on which
Public Enterprises Survey 2005-06 : Vol.-I

The policy of the Government on Disinvestment has evolved over a period of time. The National Common Minimum Programme (NCMP) outlines the policy of the Government with respect to the Public Sector, including disinvestment of Government's equity in Central Public Sector Enterprises (CPSEs). The salient features of the NCMP in this regard are as follows : (i) The Government is committed to a strong and effective public sector whose social objectives are met by its commercial functioning. But for this, there is need for selectivity and a strategic focus. The Government is pledged to devolve full managerial and commercial autonomy to successful, profit-making companies operating in a competitive environment. (ii) Generally profit-making companies will not be privatized. All privatisations will be considered on a transparent and consultative case-by-case basis. The Government will retain existing "navratna" companies in the public sector while these companies raise resources from the capital market. While every effort will be made to modernize and restructure sick public sector companies and revive sick industry, chronically loss-making companies will either be sold-off, or closed, after all workers have got their legitimate dues and compensation. The Government will induct private industry to turn around companies that have potential for revival. (iii) The Government believes that privatisation should increase 100

the company's scrip was last quoted stood at Rs. 6,46,645.23 crore. The quotes of Kudremukh Iron Ore Company Limited, Madras Fertilizer Ltd. and Hindustan Fluorocarbon Ltd. were not available. The CPSE-wise details of 44 enterprises are given in Annexure-III. The Ministry of Industry (Department of Public Enterprises) vide a resolution dated 23rd August, 1996, constituted a Public Sector Disinvestment Commission for a period of three years. The term was further

extended till 30th November, 1999. The Commission submitted reports on 58 CPSEs. The Commission was reconstituted in July, 2001 for a period of two years. The term of this Commission was subsequently extended till October, 2004. The reconstituted Commission submitted reports on 41 CPSEs, including review cases of earlier Commission's recommendations on 4 CPSEs. The term of the Commission expired on 31st October, 2004 and it has been wound up.

Disinvestment and Privatisation

101

Annexure-1 Chronology of the evolution of the policy on disinvestment since 1991-92 Date 1991-92 Interim Budget Event Government announced its intention to divest upto 20% of Government equity in selected CPSEs in favour of public sector institutional investors. In the case of selected enterprises, part of Government holdings in the equity share capital of the enterprises will be disinvested in order to provide further market discipline to the performance of public enterprises. It emphasized the need for substantial disinvestment and stated that while the percentage of equity to be divested should not be more than 49% for industires explicity reserved for the public sector, it should be either 74% or 100% for others. Government have also decided that in the generality of cases, the Government shareholding in public sector enterprises will be brought down to 26 per cent. In cases of public sector enterprises involving strategic considerations, Government will continue to retain majority holding. The interest of workers shall be protected in all cases. Government strategy towards public sector enterprises will continue to encompass a judicious mix of strengthening strategic units, privatising nonstrategic ones through gradual disinvestment of strategic sale and devising viable rehabilitation strategies for weak units. Central Public Sector Enterprises (CPSESs) have been classified into strategic and non-strategic areas for the purpose of disinvestment. Strategic CPSEs would be those in the areas of: (a) Arms and ammunitions and the allied items of defence equipment, defence air-crafts and warships; (b) Atomic engery (except in the areas related to the operation of nuclear power and applications of radiation and radio-isotopes to agriculture medicine and non-strategic industries); (c) Railway transport

Industrial Policy Statement dated 24.7.1991

Rangarajan Committee-April,1993

Budget speech-1998-1999

Budget speech-1999-2000

Cabinet decision dated 16.3.1999

102

Public Enterprises Survey 2005-06 : Vol.-I

Date

Event All other CPSESs were to be considered as nonstrategic. For the non-strategic CPSEs, it was decided that the reduction of Government stake to 26% would not be automatic. Decision in regard to the percentage of disinvestment i.e., Goverments stake going down to less than 51% or to 26% would be taken on the following considerations : a) Whether the industrial sector requires the presence of the public sector as a countervailing force to prevent concentration of power in private hands; and b) Whether the industrial sector requires a proper regulatory mechanism to protect the consumer interest before Public Sector Enterprises are privatised.

Budget speech 2000-2001

Government announced its decision to reduce its stake in the non-strategic CPSEs even below 26%, if necessary. There would be increasing emphasis on strategic sale and the entire proceeds from disinvestment/privatisation would be deployed in social sector, restructuring of CPSEs and retirement of public debts. In order to secure the presence of the public sector as a Countervailing force, the Government took the decision of not going for disinvestment of GAIL, IOC and ONGC, and retaining them as flagship companies. Central Public Sector Enterprises (CPSEs), Central Government owned Cooperative Societies (where Governments ownership is 51% or more) should not be permitted to participate in the disinvestment of other CPSEs as bidder. If in some specific cases any deviation from these restrictions is considered desirable in public interest. the Ministry/Department may bring an appropriate proposal for consideration of the Core Group of Secretaries on Disinvestment. Details about the already announced Disinvestment Fund and Asset Management company, to hold residual shares post disinvestment, shall be finalised early in 2003-04. 103

Decision dated 23.6.2000

Decision dated 7.9.2002

Budget Speech 2003-04

Disinvestment and Privatisation

Date Budget Speech 2004-05 (July 2004)

Event The Disinvestment and privatization are useful economic tools. Government will selectively employ these tools, consistent with the declared policy. Government will establish a Board for Reconstruction of Public Sector Enterprises (BRPSE). The Board will advise the Government on the measures to be taken to restructure CPSEs, including cases where disinvestment or closure or sale is justified. The disinvestment revenues will be part of the Consolidated Fund of India. While presenting the Budget for 2005-06, the manner in which the said revenues have been or will be applied for specified social sector schemes will be reported to the House. (i) Government decided, in principle, to list large, profitable Public Sector Enterprises (CPSEs) on domestic stock exchanges and to selectively sell a minority stake in listed, profitable CPSEs while retaining atleast 51% of the shares alongwith full management control so as not to disturb the Public Sector character of the companies. (ii) Government has also decided to constitute a "National Investment Fund" into which the realisation from sale of minority shareholding of the Government in profitable CPSEs would be channelised. The Fund would be maintained outside the Consolidated Fund of India. The income from the Fund would be used for the following broad investment objectives:(a) Investment in social sector projects which promote education, health care and employment; Capital investment in selected profitable and revivable Central Public Sector Enterprises that yield adequate returns in order to enlarge their capital base to finance expansion/diversification.

Decision dated 27.01.2005

(b)

Decision dated 25.11.2005.

Government decided, in principle, to list large, profitable CPSEs on domestic stock exchanges and to selectively sell small portions of equity in listed, profitable CPSEs (other than the Navratnas).

104

Public Enterprises Survey 2005-06 : Vol.-I

Annexure-II

Summary of disinvestment target and realisation since 1991-92 to 2005-06 and the methodologies dopted
Year No. of Budgeted transareceipt ctions (Rs. crore) Receipts Receipts through sale through sale of residual/ of shares minority shares to CPSEs (Rs. crore) (Rs. crore) 3037.74 0.00 Receipts Total through receipts Strategic (Rs. sale crore) (Rs. crore) 0.00 3037.74 Main transactions

1991-92

47

2500

Minority shares sold in Dec 1991 and Feb 1992 by auction method in bundles of "very good", "good" and "average" companies

1992-93

29

2500

1912.42

0.00

0.00 1912.42

Shares sold separately for each company by auction method.

1993-94

3500

0.00

0.00

0.00

0.00

Equity of 6 companies sold by open auction but proceeds received in 94-95.

1994-95 1995-96 1996-97 1997-98 1998-99

17 4 1 1 5

4000 7000 5000 4800 5000

4843.10 168.48 379.67 910.00 5371.11

0.00 0.00 0.00 0.00 0.00

0.00 4843.10 0.00 0.00 0.00 168.48 379.67 910.00

Shares sold by auction method. Shares sold by auction method. GDR -VSNL in international market. GDR -MTNL in international market. GDR-VSNL; Domestic offerings of CONCOR and GAIL; Cross purchase by 3 Oil sector companies i.e. GAIL, ONGC and IOC.(1)

0.00 5371.11

1999-00

10000

1479.27

0.00

380.87 1860.14

GDR-GAIL; Domestic offering of VSNL; capital restructuring of BALCO; (2) Strategic sale of MFIL.

2000-01 2001-02

5 8

10000 12,000

0.00 0.00

1317.23 0.00

554.03 1871.26 5657.44 5657.44

Strategic sale of BALCO and LJMC; Sale of KRL, CPCL and BRPL to CPSEs(3). Strategic sale of CMC, HTL, VSNL, IBP, PPL and sale of hotel properties of ITDC & HCI; (4) Special dividend from STC and MMTC; Divident & dividend tax from VSNL: sale of shares to VSNL employees. ( 5)

Disinvestment and Privatisation

105

2002-03

12,000

0.00

0.00

3347.98 3347.98

Strategic sale of HZL, IPCL, and sale of hotel properties of HCI & ITDC; Control premium from renunciation of rights issue from MUL; (6) Put Option of MFIL; sale of shares to employees of HZL and CMC.(7)

2003-04

14,500

15205.35

0.00

342.06 15547.41

Strategic sale of JCL; Call Option of HZL; IPO / Offer for Sale of MUL, IBP IPCL, CMC, DCI, GAIL and ONGC; Sale of shares of ICI Ltd.

2004-05

4,000

2700.06

0.00

64.81 2764.87

Offer for Sale of NTPC; sale of shares to IPCL employees etc.

2005-06

1569.67

0.00

0.00 1569.67

Offer for Sale of MUL to Institutions and employees of MUL.

Total

96800

37576.87

1317.23

10347.19 49241.29

Note: The figures include receipts on account of: 1. Cross sale of oil companies- GAIL, ONGC and IOC during 1998-99. 2. Capital restructuring of BALCO during 1999-2000. 3. Sale of majority shareholding in KRL, CPCL, BRPL to other CPSEs during 2000-01. 4. Proceeds from sale of hotels of HCI which went to Air India. 5. Special dividends in the case of STC and MMTC and dividend and dividend tax from VSNL during 2001-02 . 6. Control premium from renunciation of rights issue in the case of MUL during 2002-03. 7. The proceeds from sale of JCL which went to BBUNL, the holding company.

106

Public Enterprises Survey 2005-06 : Vol.-I

Annexure-III

Market Capitalisation of CPSEs as on 31-03-2006

S.NO. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 CODE 526173 523319 532485 500048 500049 500103 524663 500547 500072 500110 531344 523618 532178 *590024 532155 513599 500191 500449 500104 524316 500198 532189 530965 523596 523610 500873 513377 500108 504824 500109 532234 523630 Name of the CPSE ANDREW YULE & COMPANY LTD. BALMER LAWRIE & CO. LTD. BALMER LAWRIE INVESTMENT LTD. BHARAT EARTH MOVERS LTD. BHARAT ELECTRONICS LTD. BHARAT HEAVY ELECTRICALS LTD. BHARAT IMMUNOLOGICAL&BIOLOGICALS LTD. BHARAT PETROLEUM CORPN LTD. BONGAINGAON REFINERY & PETRO LTD. CHENNAI PETROLEUM CORPORATION LTD. CONTAINER CORPORATION OF INDIA LTD. DREDGING CORPORATION OF INDIA LTD. ENGINEERS INDIA LTD. FERTILIZERS & CHEM TRAVANCORE LTD. GAIL (INDIA) LTD. HINDUSTAN COPPER LTD. HINDUSTAN MACHINE TOOLS LTD. HINDUSTAN ORGANIC CHEMICAL LTD. HINDUSTAN PETROLEUM CORP LTD. HINDUSTAN PHOTO FILMS MFG. LTD. I.B.P CO. LTD. INDIA TOURISM DEVELOPMENT CORPN. LTD. INDIAN OIL CORPORATION LTD. IRCON INTERNATIONAL LTD. ITI LTD. KOCHI REFINERIES LTD. M M T C LTD. MAHANAGAR TELEPHONE NIGAM LTD. MAHARASHTRA ELECKTROSMELT LTD. MANGALORE REFINERY & PETRO LTD NATIONAL ALUMINIUM CO. LTD. NATIONAL FERTILISERS LTD. Rate (per share in Rs.) 24.20 582.55 121.00 1480.45 1321.70 2246.95 14.45 426.05 65.55 220.40 1446.30 609.50 860.05 27.85 318.25 58.30 70.65 37.20 322.90 30.00 562.75 74.40 584.15 152.50 68.30 173.65 442.60 183.80 92.40 42.50 293.30 39.20 Market Capitalisation (Rs. in Crs.) 141.01 978.10 268.59 5477.67 10573.60 54996.35 36.69 12780.46 1309.81 3356.58 9399.71 1706.60 4830.04 988.04 26912.86 2115.58 3307.63 250.60 10956.97 575.71 1246.33 50.37 68227.67 150.94 601.04 2404.72 2213.00 11579.40 221.76 7450.88 18897.60 1923.07

Disinvestment and Privatisation

107

33 34 35 36 37 38 39 40 41 42 43 44

526371 532555 513683 500312 524230 505141 523598 512531 500113

NATIONAL MINERAL DEVL CORP LTD. NATIONAL THERMAL POWER CORPN. LTD. NEYVELI LIGNITE CORPN. LTD. OIL & NATURAL GAS CORPN. LTD. RASHTRIYA CHEM & FERT. LTD. SCOOTERS INDIA LTD. SHIPPING CORPN OF INDIA LTD. STATE TRADING CORP. OF INDIA LTD. STEEL AUTHORITY OF INDIA LTD. MADRAS FERTILIZERS LTD. KUDREMUKH IRON ORE LTD. HINDUSTAN FLUOROCARBON LTD. Total

2200.00 134.00 75.05 1309.50 36.85 26.20 169.35 170.00 83.30 N.A. N.A. N.A.

29074.58 110489.22 12591.21 186726.06 2032.97 104.78 4780.79 510.00 34406.24 646645.23

Source : BSE

108

Public Enterprises Survey 2005-06 : Vol.-I