Bloomberg

In what could raise a political storm, the government is toying with the idea of diluting its stake in navratna power public sector enterprises (PSEs) to just about 51%.
A group of ministers (GoM) on financial issues, headed by external affairs minister Pranab Mukher-jee, has recommended divestment of stake in central power utilities to raise about Rs 48,000 crore for funding electricity projects.
The final call has to be taken by the union cabinet. It is uncertain whether the cabinet will go with the GoM recommendation, given a strong opposition to disinvestments in Navratna PSEs not only from the Left parties, which prop it from outside, but also from UPA allies. Earlier, the government was forced to reconsider its decision to dilute stake in Neyveli Lignite Corporation and Nalco in 2006 after the UPA ally DMK and Left parties opposed the move. The prime minister was forced by DMK and the Left parties to put all disinvestment decisions of the cabinet PSEs on hold. This continues to be the government’s policy even today.
After disinvestments of profit-making PSEs were put on hold, the government had to resort to IPOs of a few companies such as PFC. In the process, it has also managed to offload a small part of its holding. The GoM has made out a convincing case aimed at mobilising the much-needed capital for power generation and related infrastructure. It has proposed to take recourse to disinvestments, IPOs and FPOs for mobilising a total of Rs 66,000 crore to augment funds for expansion of existing power projects and taking up green-field projects.
NTPC, NHPC, PGCIL, PFC and REC have been identified for dilution of government holding up to 49 per cent, besides IPOs and FPOs for enhancing their capital base. So far, only Rs 3500 crore has been mobilised through disinvestments in power PSEs.
The GoM has estimated that Rs 18,000 crore can be mobilised through IPOs and FPOs that are on hold due to choppy to market conditions.
Disinvestment or equity sale is proposed to be done in phases to suit capital requirement in these companies that are pursuing large capital power projects. Major chunk of funds mobilised through disinvestments would be utilised for capital investments made by these companies. The rest would be transferred to the National Electricity Fund proposed by finance minister P Chidambaram announced in this year’s budget. The money will be utilised for strengthening and expansion of power transmission and distribution systems.
Putting disinvestments proceeds in the National Electricity Fund is being seen as a move aimed at blunting the opposition from Left parties. Hitherto, all disinvestment funds were to be parked in the National Investment Fund.
When contacted, NTPC chairman and managing director T Sankaralingam said, “There is no such proposal as far as I know.” The union government has been toying with the idea of an FPO and a GDR / ADR issue for NTPC after the blockbuster IPO in 2004 when it mobilised Rs 5,400 crore via sale of five per cent government equity and issue of five per cent fresh equity. Similarly, PFC has been clamouring for an FPO after its successful IPO in January 2007 through which Rs 1,000 crore was mobilised. Speaking to Financial Chronicle, PFC chairman and managing director, VKGarg, said, “I am not aware of any such issue (FPO and disinvestments)”.
REC had mopped up Rs 1,642 crore through an IPO in February this year. When contacted, a director with REC said, “Divestment in a Navratna company is not possible. However, if at all there is fresh disinvestment of REC shares, it will only be in next financial year”. PGCIL had also gone ahead with an IPO and mobilised funds worth Rs 3,000 crore through an IPO during the last fiscal.