The government is planning to reduce its stake in state-owned trading firm MMTC from the current 90 per cent to 75 per cent, as mandated by the Securities and Exchange Board of India (sebi), senior officials said. But, this will be done only after a final decision is taken on shutting down loss-making State Trading Corporation (STC) and PEC, two other government-owned trading companies that are in worse financial shape, they said.
MMTC saw annual profit after taxes rise to Rs 81.43 crore in 2018-19, from Rs 48.84 crore in the year before, whereas with massive overheads, STC and PEC have both reported losses. The decision on the future of these firms will be taken by the Cabinet Committee on Economic Affairs by next month, they said.
For now, commerce department officials say, MMTC has been told to immediately revamp operations, cut costs by retreating from loss-making joint ventures and unviable markets. MMTC has also been asked to calculate the value of land and properties held by it. MMTC Chairman and Managing Director Ved Prakash on Tuesday said the company was preparing to shut down three of its 20 offices.
MMTC, the largest public sector trading body in the country, is one of the two highest earners of foreign exchange for India. The government’s stake in MMTC stood at 89.9 per cent at the beginning of the second quarter of the current financial year.
“Earlier this year, the Department of Investment and Public Asset Management (Dipam) had started work on disinvestment of 9.5 per cent but it was decided later that the figure would be close to 15 per cent to adhere to market listing norms,” a senior MMTC official, said.
Sebi guidelines mandate that every listed entity will have to maintain a minimum public shareholding of 25 per cent. However, “with MMTC not receiving a final deadline from Dipam on the matter, we feel the disinvestment procedure may be taken up slowly and in the future”, the official added.
In September 2012, the government had decided to bring down its stake by 9.33 per cent.
MMTC was carved out of STC to deal in exports of minerals and ores and imports of non-ferrous metals. In 1970, MMTC took over import of fertiliser raw material and finished fertilisers. Over the years, import and export of various other items like steel, diamonds, bullion, agro, hydrocarbon, etc. were progressively added to the portfolio.
The commerce department had prepared a Cabinet note in 2018, suggesting the merger of PEC and STC. The department had also suggested that the government bear the expenses for voluntary retirement scheme to be offered to about 600-700 employees of STC. While the government wholly owns PEC, it has about 90 per cent stake in STC. However, the proposal was turned down then.
In 2017, the government hired a consultancy firm to create a revival road map for the two bodies, whose earnings have swung massively in recent years. PEC was carved out of STC’s railway equipment division in 1971-72 to take over the canalized business. It later diversified into turn-key projects, especially outside India and to aid and assist in promotion of exports of Indian engineering equipment. PEC’s website has financial details only till 2014-15. It has completed around 57 projects spread across more than 23 countries.
The Comptroller and Auditor General (CAG) has repeatedly pulled up the bodies for fraud and mismanagement, while government departments like consumer affairs have been accused of causing loss to the three bodies.
Earlier, CAG said the firms have incurred a loss of Rs 1,201 crore on import and sale of pulses between 2006 and 2011 because of serious deficiencies in the design, implementation and monitoring of procurement schemes.
Sources say the decision to restructure government exposure to the three agencies was taken last month after a review of investments by central public sector enterprises in publicly listed state-level entities. There are about 500 state-level public enterprises, of which 200 are reportedly making losses.