The pressure on lockdown-hit central public sector enterprises (PSEs) to finance the government’s growing expenditure on fighting Covid-19 pandemic resulting in large budget deficit is mounting. This is despite the fact that most PSEs are highly financially stressed following the global as well as local economic downturn since last February. The massive fall in crude oil prices with the demand for the commodity suddenly hitting the bottom over the last three months, normally fund-flush oil producers and refiners are in deep distress. The crude oil market crash has spelt havoc on ONGC Limited. ONGC’s average price realisation of USD 22 per barrel in April was not enough to cover even its operating cost. According to Crisil Ratings, Indian oil refiners may make inventory loss of over Rs 25,000 crore in the January-March quarter alone because of a 70 percent fall in crude prices. The gross refining margins are likely to plunge further in the first quarter (April-June) of this financial year due to demand destruction. The oil PSEs are highly worried.

However, despite this the oil PSEs contributed generously to various central and state relief funds to fight the pandemic. Before the end of March itself, the oil PSUs, led by ONGC, contributed over Rs.1,000 crore to the Prime Minister’s CARES Fund alone. ONGC was the top contributor with Rs 300 crore, followed by IOC (Rs 225 crore), Bharat Petroleum (Rs 175 crore), Hindustan Petroleum (Rs 120 crore). The total PSE support to various relief funds and direct participation in relief works, including employees’ contribution would be close to Rs. 3,000 crore.

The government is now said to be planning to tap the free reserves of some of the top PSEs — generally meant for the use of capital expenditure, acquisitions, expansion and emergency needs such as natural calamities and negative bottom lines — to rescue its highly ambitious 2020-21 disinvestment plan in the face of the stock market crash. The select PSUs, showing good reserves, may be made to buy government holdings in each other to support the pubic disinvestment programme.

The government has done it in the recent years on a limited scale. This time, it could be on a much bigger account. Thanks to the growing global and local economic crisis due to the Covid-19 pandemic, few big private sector investors — domestic or overseas — are interested in spending large funds to take control of the government-owned companies on sale. As a result, the Department of Investment and Public Asset Management (DIPAM) is believed to be thinking on asking some chosen PSEs to take over the government holding in the companies on ‘strategic sale’ under attractive valuation. Such a step would eliminate the need for undertaking an uncertain and complex public sell-off process that may otherwise fail to fructify. The select PSEs may also be asked to bid for the government stake in profit-making entities, if the strategic sale plan involving private sector entities does not generate right response. For instance, if the government fails to get desired response for sale of equity in Bharat Petroleum, it may consider an offer from another PSE, such as IOC which had indicated its interest in the refiner. Investor response to the government’s strategic disinvestment or sale offers has lately been quite lukewarm.

Interestingly, the government is yet to find an acceptable buyer for the national flag carrier, Air India. The state-owned airline enterprise serves 94 domestic and international destinations. Air India is the largest international carrier out of India with an 18.6 percent market share covering over 60 international destinations across four continents. The airline became the 27th member of Star Alliance in 2014. The government’s bid to sell its entire 51 percent stake in high performing

Pawan Hans Helicopters to a strategic investor last year failed to attract an acceptable bidder even after several extensions for submitting expressions of interest. The government has a list of 28 companies in which it has given ”in-principle” approval for strategic divestment. Nothing seems to be working out as per government plans. The state-owned insurance giant, LIC of India, is being allowed to waste massive funds in panic advertising for months to promote its IPO, terms and timing of which are still unknown. A major highlight of the government’s disinvestment proposal, setting an ambitious target of Rs.2.1 trillion this year, is the sale of minority stake in LIC through an initial public offer. The disinvestment target for 2020-21 includes Rs 90,000 crore from public sector banks and financial institutions. Besides LIC, the government is looking to sell its remaining stake in IDBI Bank. “The Rs 90,000 crore for financial sector disinvestment will come from LIC and IDBI Bank. The valuation will be decided at the time of listing,” the union finance secretary had said at the post-Budget press conference.

The government’s plan to make chosen PSEs buy the state holding in each other, as a last resort, may have been encouraged by the success of its Rs 4,800 crore deal between GAIL and an IL&FS subsidiary to take over the latter’s 874 MW of operational wind projects. Also, NTPC acquired the Centre’s stake in two power sector PSEs – NEEPCO and THDC — for Rs 11,500 crore. Earlier, ONGC completed acquisition of government’s stake in HPCL. In strategic disinvestments in five PSEs — HPCL, REC, HSCC, NPCC and DCIL — the tabs for which were picked up by other PSEs, like ONGC, PFC, NBCC, WAPCOS, and public-sector consortium of ports, respectively, the government had mobilised Rs 52,828.8 crore in receipts. But, time was different then. Today, big PSEs themselves are under severe financial strains mainly due to prolonged lockdown leading to big crash in sales income and profits. Forcing them to buy government stocks from their reserve funds are bound to send these PSEs in deeper distress.

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