Shift in stance: Govt likely to indemnify PSU buyers from past claims

Litigation-free assets among several buyer-friendly steps

The government has become flexible to the interests of buy­ers as it looks to move ah­e­a­d with its ambitious privatisation drive.

The government, in pre-bidding consultations, has informed potential buyers of public sector undertakings (PSUs) that they will not be held liable for any claims arising prior to the sale of state-owned entities. This will be done through the representation and warranty clause in the share purchase agreement, which is a shift from the government’s earlier stance of selling assets on an ‘as is where is’ basis.

This comes in the backdrop of Devas Multimedia and Cairn Energy moving a New York court seeking to seize assets of divestment-bound Air India. The buyers of the national carrier will not be liable for any such claims made prior to the sale, and will get unencumbered assets of the state-owned airline. This will be applicable to all PSUs on the block where buyers will not have to bear any past dues, said an official.

For instance, if an aircraft or a shipping vessel is on lien, the government will settle it, and transfer a ‘clean asset’ to the new buyer, the official explained. “Earlier it used to be, take it or leave it,” he said. “With a clear policy on privatisation of PSUs, the government is willing to give the representations and warranties,” he added. 

Previously, the government, in its privatisation proposals, used to explicitly mention it would not take any responsibility or accept any direct or indirect liability which may be incurred due to anything specified in the sale proposal.

This is one of the several steps the government has taken to ensure its ambitious exercise of privatising PSUs, already in pipeline, along with fresh divestment proposals, is a success. In the draft request for proposal for Air India shared with potential bidders, the government has proposed retaining the existing employees of the carrier for one year after privatisation. This is seen as a step that will not deter potential buyers of the airline, but at the same time will set a precedent for all PSU privatisation.

The government aims to garner Rs 1.75 trillion in divestment receipts in the current fiscal year, and targets to complete some of the big-ticket privatisation proposals such as Bharat Petroleum Corporation and Air India in the ongoing fiscal year.