Govt draws up blueprint to deal with sick PSUs

Strategic sale to be considered for six firms, 26 may be closed

The Union government has decided to adopt a multi-pronged approach to deal with the problems arising out of sick, non-performing and loss-making public sector undertakings (PSUs) under its administrative control.

The approach envisages a mix of policy options - closure of some enterprises, followed by sale of assets such as land that could be monetised, transfer of ownership of some of them to state governments that are willing to take them over, and revival of those undertakings that serve a public purpose or are already under a revival programme.

It has also been recognised that PSUs should not operate in the hotels sector. Two options are being explored for PSUs that continue to operate hotels. Either offer these hotel assets to the private sector on long leases of about 50 years or transfer their ownership to the government of the states where these are located.

The option of strategic sale will also be considered for six PSUs. The names of the identified PSUs are not known. But this option will be explored only when the state governments concerned, which hold minority equity in each of these companies directly or indirectly, are not willing to take them over. A curb is also being imposed on PSUs to disallow them from floating new subsidiaries or joint ventures. This is being done in the context of a proliferation of such PSU subsidiaries that are financially weak or have no business rationale to exist.

According to senior government sources, the recommendations outlining the broad approach have been finalised by a committee set up by the NITI Aayog and would be considered on a case-to-case basis for implementation in a phased manner.

In line with this approach, 26 PSUs will be taken up for closure. The modus operandi for closure has also been finalised. Once the liabilities of such PSUs are cleaned up, the management of these companies would be required to dispose of the assets that can be monetised. Guidelines on how land assets should be dealt with by the management of such PSUs have been framed.

It has been stipulated that the lease-held land will have to be disposed of in keeping with the terms of the lease agreements. But for freehold land or which is held in perpetual lease, the plan is to transfer or sell it to a department or organisation of the central government or to another central PSU. If some residual land is still left after this exercise, it could be sold to the state government or its designated entity at its acquisition price minus the costs of rehabilitation and resettlement already incurred. Whatever land is still left will be handed over to the ministry under whose administrative control the PSU operates. The relevant ministry will explore possibilities of development and monetisation of the land through options including open auction.

The approach to monetising land assets has been framed in the context of the government's realisation that quite a few sick PSUs have in their possession huge tracts of land, which are not being used at present. In such cases, in particular, the PSUs would be asked to hive off the land and offer it for more productive use.

As far as revival of sick PSUs is concerned, the government approach is to revive 22 of them. The names of these companies are not made public, but three conditions have been stipulated for the revival strategy. One, PSUs to be revived must have a public purpose. Two, they should already be under a revival programme. And three, revival efforts must be based on market principles, not on the basis of sale of land assets alone. This is relevant because the real value of many of the sick PSUs lies only in their land and building assets, said a senior government source.

The expectation is that once this package is implemented in the next few years, the government will be able to move away from areas where it has no reason to do business. The continuing drain on the exchequer caused by PSUs would also come to an end in addition to unlocking the assets of PSUs for more productive use. Between 2004-05 and 2015-16, the government's cumulative Budget support to all PSUs is estimated at Rs 1,18,822 crore, of which the 74 PSUs studied by the NITI Aayog committee accounted for as much as 45 per cent or Rs 53,772 crore. In addition, these PSUs also owe an estimated Rs 34,000 crore to the government by way of interest payments.

Already, the guidelines for closure of sick and loss-making PSUs and disposal of their moveable assets have been issued to make the process of shutting them down simpler. In the last two years, the government has already approved the closure of four PSUs - HMT Watches, HMT Chinar Watches, HMT Bearings and Tungabhadra Steel Products. Also, with the closure of the Board for Reconstruction of Public Sector Enterprises, the sole responsibility of monitoring the revival of PSUs has now been entrusted with the NITI Aayog.
TACKLING SICK PSUS

• 74 PSUs examined; six may be considered for strategic sale if there are no takers from state governments
  

 

26 sick or loss-making PSUs to be closed
 

Stress on PSUs’ land assets sale; guidelines framed
 

22 PSUs to be revived; three conditions set
 

Hotel assets of PSUs to be transferred to private sector on 50-year lease or to state governments
 

Curbs on PSUs floating subsidiaries