FROM Pattabi’s NOTEBOOK
A Study
on Loss making PSUs
The DPE has been publishing annual survey of PSUs . One can infer from that how many units are in profit mode and how many are in the loss
making mode. The Survey is listing details of every PSU on the basis of their
cognate group like telecom, power, chemicals etc. NITI Aayog is giving its
recommendations whenever warranted. Parliamentary committee is also interested
to study about the PSUs and even special sittings are there for loss making units.
This note is a compilation of some prime findings of above said agencies..
As per the 16-17 survey the loss making units are more in numbers (82 )
comparing 71 units of 17-18. More detailed study about 16-17 is found involving
NITi Aaayog, CII etc.
Analyzing the 'Loss Making
PSUs of 2016-17' of the 82 units ,below 20 cr loss making units are 41 in
number, between 20 cr to 50 cr 9 psus , between 50-100 cr 8 Psus, above 100 cr
24 Units and in that above 1000 cr is only 5 PSUs that are big tickets. In most of
the PSUs the loss is very meager.
BSNL, AirIndia Ltd, MTNL are the
3 top most loss making units in the year 16-17 as well as in 17-18. Out of
total losses these 3 are sharing 55.66 % in 16-17 and 52.15 % in 17-18. The loss
making percentage of BSNL is
25.57 %, Air India 17.01 % and MTNL 9.51 % in the year 17-18.
Taking the top 10 loss making units their loss share is 84.71 % and the
remaining 61 Psus share is 15.29 %. When we analyze this sharing aspect for
16-17 the top 10 loss making units cover 83.82 % of the total losses and the
remaining 72 PSUs cover16.18 %
2
As BRPSE is no more there, Govt has given instruction to the concerned
ministry to monitor and plan for revival of Sick/Loss making units as per the
relevant DPE guidelines issued since 2015 , after the formation of BJP Modi
Govt. Ministries may report back to parliament about the reasons for sickness/
loss making of the concerned PSUs. Reasons may vary. But certainly there are some common reasons
like the following broadly found by various agencies
Old and obsolete plant and machinery
Outdated technology
Low capacity utilization
Low productivity
Poor debt-equity structure
Excess manpower
Weak marketing \ strategies
Stiff competition
Lack of business plans
Dependence on Government Orders
Heavy interest burden
High input cost
Resource crunch
Committee of Secretaries chaired by cabinet Secretary during July 2015
identified 48 Sick/loss making units and adding this DPE referred another 26 sick/Loss making
Units. NITI Aayog on its part is reporting that it is giving recommendations
only for all these 74 Units and final decision rests on the respective ministry
only.
The BSNL is running into losses since Financial Year 2009-10. The
reasons to incur losses in BSNL are as follows :(as stated by BSNL )
BSNL is providing telecom services in remote and hilly areas in various
states e.g. Himachal Pradesh, Uttarakhand, J&K, North East, Chattisgarh,
A&N Islands and Lakshadweep Islands through satellite and Point to Point
Radio Links. Point to Point Radio links were also provided in backbone network
in other part of the Country. For using point to point links huge spectrum
charges are to be paid to WPC. Similarly, satellite transponders charges are
payable to ISRO for satellite links, which are very huge. Due to this, BSNL is
incurring huge losses for providing services in the remote areas where optical
fibre cable connectivity is either not reliable or not feasible.
The optical fibre cable (OFC)
Network of BSNL is being damaged severely during road expansion and it has become very difficult for
BSNL to maintain the OFC network, which is a backbone for all services. To
overcome this problem, BSNL is compelled to hire bandwidth from other Operators
like PGCIL, Oil India Limited and RailTel. PGCIL’s network is working on
electric lines (OPGW) and RailTel Network is along Railway lines. Therefore,
OFC Network of these operators is not affected by road widening/expansion work.
BSNL is spending about ₹125 Cr.
Per annum towards hiring of bandwidth from other operators.
To overcome the present condition and make it a profit unit, BSNL has an
ambitious plan for monetization of its land and building assets to earn revenue.
The other needs are
All Government funded projects may be given to the BSNL.
All government Department and Government Owned PSU may be asked to take
their telecom requirement from BSNL as first choice.
BSNL needs to firm up its space in whole sale business of leasing out
its core network. Also it may be more remunerative to deal in ICT products
rather than vanilla Telecom services for which company needs to create its
forte in IT segment by upgrading in-house skills
.
3
DPE is reporting that many of these CPSUs are in control of valuable
resources (e.g. land, buildings, etc) that are, in many cases, not being put to
good use. Action needs to be taken to ensure efficient usage of resources by
the enterprises
The three strategies regarding
loss making units are revival, sale, or closure of PSus. There are
multiple ways of implementing each of these strategies. The following are
the key ways in which each of these strategies can be implemented:
i.
Revival: a
CPSU's revival could be pursued on a standalone basis, it could be merged with
another CPSU, or it could be revived through a strategic partnership or
management contract with a suitable firm.
ii.
ii. Sale: a CPSU could be sold to another
firm, or it could be listed in the stock markets and converted into a
board-managed private sector company.
iii.
iii. Closure:
Closure could be outright closure of the entire CPSU, or partial closure of
certain businesses of a CPSU. It is important to state the principles to be
applied to choose between these strategies for any sick or loss making CPSU.
Such principles should be uniformly applied to all CPSUs to recommend suitable
strategies for each CPSU
The 14th Finance Commission was tasked with recommending a strategy for
“relinquishing non-priority enterprises”. The Commission provided a list of illustrative criteria that could be
used for priority classification of CPSUs. These criteria are:
i.
activity
assessed as strategic in terms of public interest;
ii.
ii. the
enterprises having earmarked or assigned natural resources with sovereign or
quasi-sovereign functions;
iii.
iii. the enterprises required to cater to
market imperfections;
iv.
iv. enterprises where returns on investments
are higher than any alternative investment by the government; and public
utilities, where some presence of public enterprises may be desirable as a
reference point for getting more reliable information for the regulators.
NIPFP’s (National Institute of Public Finance Policy) view, the criteria
should include: ▪ Strategic importance:
Does the enterprise serve such a strategic purpose that the government
would like to retain direct control over it?
: Is the enterprise a public utility, where such presence of public
enterprises may be desirable as a reference point for getting more reliable
information for the regulators?
It is understood that for
regulation of public utilities, regulators need reliable information from
regulated entities to ensure they are able to make sound regulations and
effectively enforce them
All low priority CPSUs with significant enterprise value may be
considered for sale..There is a
strong case to prioritise sale of sick and incipient sick low priority CPSUs,
if they have significant enterprise value, beyond the value of their land and
buildings. Further, any low priority CPSU that is sick or incipient sick, and
does not have any significant enterprise value beyond the land and buildings it
controls, should be recommended for closure
On a query regarding whether the telecommunication is a strategic
sector, the Department of Telecommunications in a written reply to the DPE
submitted as under:
'As per the information furnished by Ministry of Communications,
Department of Telecommunications, the PSUs have played a pre-eminent role in
provision of telecom services in the country, particularly in rural, remote,
backward and hilly areas. Contribution of BSNL and MTNL to broadband
penetration in the country is significant. The importance of PSU in meeting the
strategic and security needs of the nation can also not be understated. The
PSUs also play a key role in balancing market forces in the interest of
consumer..Presence of PSUs like BSNL and MTNL enhances the Government
capabilities to facilitate in matters of national security/natural calamity or
international importance, including execution of bilateral projects funded by
Government of India. It serves security needs in areas of strife and conflict
and is also the principal vehicles for fulfilling the socio-economic
obligations of Government by implementing projects of national importance for
Government. Government cal also provide vital support for domestic
manufacturing of Indian Telecom Products through/within Telecom PSUs for
deployment of indigenously developed Telecom products with Indian IPR. PSUs
serves security needs in areas of conflict and is also the principal vehicles
for fulfilling the socio-economic obligations of Government by implementing
projects of national importance for Government like BharatNet.
On the issue of merger of BSNL and MTNL:
Regarding chalking out a future plan for BSNL and MTNL, when asked
whether they agreed to a suggestion regarding merger of BSNL and MTNL to bring
them out of losses, MTNL submitted as under:
'The possibility of revival after
merger of BSNL and MTNL is expected due to the fact that the same would pave
the way for (i) Pan-India Presence of combined entity (ii) Leveraging combined
capacities, (iii) Reduction in fixed costs, (iv) Avoidance of duplication of
facilities, (v) Optimization in utilization of infrastructure; and (vi)
Enhancing the competence of combined entity to meet the competition
DPE submitted the following
information :
'BSNL and MTNL have been incurring losses for a number of years.
Therefore, as per Department of Public Enterprises (DPE) guidelines, both BSNL
and MTNL have been declared as "Incipient Sick". On the issue of
merger of BSNL and MTNL, it has been decided that keeping in view the various
challenges involved in the merger, it is not advisable to pursue the merger of
MTNL and BSNL at this
juncture, till a resolution on MTNL employees, debt of MTNL and MTNL properties
is reached'
On the Issue of Disinvestment, NITI
Aayog submitted as follows :-
"All CPSUs except under
those in the strategic areas are eligible to be considered for strategic
disinvestment The strategic areas are: CPSUs serving National security
purposes; CPSUs serving a sovereign or quasi-sovereign function that would
otherwise have been performed by the Government directly; and CPSUs that are
performing developmental functions that the Government may consider important,
where the private sectors are not present or failing to perform
Regarding VRS :
On
the issue of VRS to its employees, CMD-BSNL during the course of oral evidence
submitted to the parliamentary committee as under:
‘There was a question regarding VRS. The VRS proposal at the moment is with the
DoT. It has not yet been communicated to us. One lakh employees were supposed
to have been given VRS, but the matters is still under consideration of the
Government. The need for VRS was established when the company was going in for
losses for consecutive years and there was a presentation made to the BRPSE. At
that point of time, the question of VRS had come into being and the DoT also has not taken a decision in this
regard. One lakh people were supposed to have been given VRS, as per the Sam
Pitroda Committee also. This is the genesis of the whole issue.’
MTNL CMD Reported:
It
is only on 2013-14 that the Government has taken over the pension liability;
otherwise MTNL was making the pension payment for all its employees from 2000
onward till March 2013. The total pension liability which was accumulated was
to the tune of ₹
10,900 crore which MTNL has to provide in its books of accounts. We have
already submitted a proposal for VRS to the Government in which they have
agreed for 20 per cent VRS employees who are retiring in next 10 years, for
5300 employees at a cost of ₹
1000 crore. The proposal has already been approved by the Telecom Commission
which is a multi-departmental body. It is under inter-Ministerial consultation.
We look forward; this is only the first phase of VRS. It is because, even with
the 5300 employees, it is not a great number by which we can get it. But, one
positive part is this. My 25,000 employees are retiring in next 10 years. Every
year, 3000 plus employees are retiring.’
NITI Aayog Stated:
On
a specific query whether NITI Aayog has made any estimate on thel full
implications on VRS and any budgetary provision proposed in the event of
closure of the 26 CPSUs recommended for closure by NITI Aayog, the Aayog
clarified as under: 'No estimate has been made by NITI Aayog. Administrative
ministries draw up the VRS plan. No provision is made. It is possible from the
sale of assets of closing CPSUs to offset VRS.
LAND
MANAGEMENT AGENCY
The
Government has designated NBCC (National Bldg Construction corp Ltd)
as the Land management Agency (LMA) and entrusted NBCC to monetize the assets
of loss making CPSUS. NBCC stated that
NBCC sent an Expression of Interest (EOI) to 74 CPSUs requesting them to
appoint NBCC as their Land Management Agency (LMA). Thus far, 10 CPSUs have
appointed NBCC as their LMA and 28 CPSUS have declined.
▪
MTNL shared a list of properties with NBCC, where redevelopment could be taken
up. ▪ NBCC and MTNL have discussed issues such as land use permission,
leasehold status of land, etc. with the DDA. ▪ Most of the properties at Mumbai
are freehold; however, they were allotted for specific use. Hence, change of
land use is required for monetization. ▪ MOU is yet to be signed with MTNL for
the proposed monetization of their assets. ▪ NBCC has presented to the CMD and
other senior officials of MTNL and clarifications on the proposed draft MoU have
been provided to MTNL. Draft MoU is still under consideration with MTNL. ▪
Further action will be initiated after signing of MoU for joint
development/monetization.
On
the issue of monetisation of assets of Air India, C&AG in their Report No.
40 of 2016 had stated that Air India ltd. failed to achieve the target of
monetisation of their assets due to improper selection of properties not based
on actual feasibility of monetisation and in their recommendation hinted on the
absence of proper title deeds as well as limiting provisions/ conditions in the
lease agreements of assets of the CPSU thereby impacting their monetization
4
Observations of Parliamentary committee
1.MTNL and BSNL that are operating in
the telecommunication sector also consider themselves of ‘strategic’ importance. The Committee thus
feel that, in the event of the Government itself not having a uniform parameter
for categorising CPSUs as ‘strategic’ it would be difficult for them to arrive
at any conclusion 138 whether a particular CPSU is to be retained by the
Government, closed or divested. In such a scenario, the Committee recommend
the Government to work out uniform definition/parameters of ‘strategic’ for
classification of CPSUs
2.
The merger of two loss-making PSUs i.e. Air India and Indian Airlines did not
work well and the proposed merger of IL with BHEL failed to materialise, the
takeover of Hindustan Steelworks Construction Ltd. (HSCL), a loss-making PSU by
a profit making PSU like NBCC seems showing positive results. With regard to
the merger of AIL & IAL into NACIL, the Committee would like to recall that
in their Report No.18 of 2011, the C&AG termed the merger of AIL & IAL
into NACIL as ‘ill-timed, without proper justification and synergized
operation, without HR integration, delayed and having serious uncertainties’.
The NITI Aayog also mentioned that the losses of Air India can also be
attributable to the decision of merger taken in 2007 wherein two very different
organizations with dissimilar equipment and Human Resources practices were
intended to be merged.
3.
The Committee caution the Government to analyze all the factors before
taking any decision on the merger of two CPSUs, particularly in the context of
merger of two biggest loss making CPSUs, MTNL & BSNL whose combined
financial liabilities during 2016-17 was a whopping ₹2403873
lakh, the combined manpower of both PSUs is a staggering figure of 224367
persons and also various procedural lapses have been pointed out in the case of
MTNL and BSNL by C&AG of India
4. Surprisingly, NITI Aayog has also not
made any estimate on the full implications of VRS nor they proposed any
budgetary provision for utilization in the event of closure of these CPSUs. The
Committee further observe that there are large number of employees in loss
making PSUs who are in the younger age bracket and being a highly skilled
workforce and qualified professionals, are eager to work towards turnaround of
their company’s fortune but are unable to do so due to acute shortage of
working capital. The Committee feel that the Government must give serious
considerations on all such issues in a specified time frame with a view to not
only utilize the skilled work force of loss making PSUs but also save their
dependents from a life of misery and despair. In a nutshell, the Committee
would emphasize that it is a humanitarian issue for the Government as
dependents of such employees suffer the most when a PSU becomes incapable of
disbursing their salaries/completing VRS packages/or when the employees lose
their employment due to closure of the PSU.
5. The Committee find that the
process of monetization of assets of loss making CPSUs is hardly progressing
fast as these properties have not generated requisite interest among potential
buyers..
The Committee hence desire the Government to pay attention to these aspects,
while reviewing their policy on sale/monetization of surplus land and assets of
the loss making PSUs, as well as to ensure that such decisions are in tandem
with the prevailing land acquisition laws. Besides the Committee would like to
emphasize for making the process of monetization of assets including land of
loss making PSUs transparent. With regard to sale of land of loss making PSUs,
the Committee would like to be apprised whether the Government has explored any
future requirement of the land & assets, currently identified for sale, by
such loss-making PSUs, which are slated to be revived, and not closed, because
acquiring the assets of such scale and at prime locations again may not be
possible in future.
DPE
in this regard has emphatically justified the present policy of the Government
stating that CPSUs have been set up with public funds and Government is the
majority shareholders in these CPSUs and therefore, it may not be appropriate
to empower the Boards of CPSUs to monetize
their assets. Keeping in view the present scenario of ever-evolving technology
and tough competition in the market that a CPSU has to work and the present
scenario of more and more CPSUs falling sick, the Committee feel that the
aforesaid policy need to be relooked by the Government
8-2-19
