Strategic Disinvestment of CPSEs: SAIL Invites Bids for Categorical Sale of Durgapur Alloy Steel Plant

State-run Steel Authority of India Ltd (SAIL) which had geared up for modernization and expansion invited bids from companies for the strategic sale of its Alloy Steels Plant at Durgapur in West Bengal. The move came as part of the Centre’s strategic divestment process which was initiated by the NITI Aayog.

 “This disinvestment process is to be implemented through open competitive bidding route. Accordingly, Expression of Interest (EOI) is invited from Interested Bidders, to be submitted by April 115, 2018,” reads the Preliminary Information Memorandum (PIM)/ EOI. SAIL has appointed SBI Capital Markets Limited (SBICAP) as its Transaction Advisor to advise and manage the strategic disinvestment process.

As part of the strategic disinvestment, Alloy Steels Plant (ASP), which has the total capacity of production of 2.46 lakh mt per annum of liquid steel and 1.84 lakh mt per annum of saleable steel, will be transferred to the strategic investor.

"The strategic investor will be appointed through a competitive bidding process, which shall be handled by the Government of India and its functionaries including, but not limited to, SAIL and Ministry of Steel," said the PIM/EOI inviting bids.

According to a guidance note issued on October 5, 2017, by the Department of Investment & Public Asset Management under Ministry of Finance, “strategic disinvestment implies sale of substantial portion of the Government shareholding of a Central Public Sector Enterprise (CPSE) of up to 50%, or such higher percentage as the competent authority may determine, along with transfer of management control”.

NITI Aayog in its report dated August 2, 2016, recommended strategic disinvestment of several Central Public Sector Enterprises (CPSEs) including ASP Durgapur, Salem Steel Plant and Visvesvaraya Iron and Steel Plant to a technology partner-cum investor with management control transferred to the private partner.

As per the recommendations of the NITI Aayog, the Cabinet Committee on Economic Affairs approved strategic disinvestment of several CPSEs including the ASP Durgapur in its meeting on October 27, 2016. The strategic disinvestment of ASP was approved ‘in-principle’ by the Board of Directors of SAIL on February 9, 2017. Thereafter, the Board approved strategic disinvestment of 100% stake in ASP on August 11, 2017.

The Government had accorded ‘in-principle’ approval for strategic disinvestment of the three units of SAIL saying that these have been consistently making losses, as stated in the data which was provided by the Minister of State in the Ministry of Steel, Shri Vishnu Deo Sai, in reply to questions in Rajya Sabha on March 29, 2017.

Meanwhile, the recent reports say that the revenue for the ASP stood at Rs. 321.35cr for 9MFY18. Beating the estimated analysis, SAIL Ltd ended up in a strong growth on the revenue and operating fronts in the third quarter of the financial year 2017-18. Revenue increased by 21.4% to Rs. 15,323.6 crore, against the expectation of Rs. 14,694 crore.

In the case of the entire steel production in India, a recent report from Joint Plant Committees (JPC) of Steel Ministry shows that India’s finished steel production has risen by 5.3 percent to 88.592 million tonnes during the April-January period of the 2017-18 financial year.

"Production for sale of total finished steel at 88.592 mt, registered a growth of 5.3 percent during April-January 2017-18 over the same period of last year...... India's consumption of total finished steel saw a growth of 5.4 percent in April-January 2017-18 (to 72.497 mt) over the same period of last year, under the influence of rising production for sale and imports," said the JPC report.

As per the report, SAIL and the private players together produced 51.717 mt of finished steel for sale during the first ten months of the current fiscal year, which was a growth of nine percent over the same period of last year. By privatising state-owned SAIL, the private players like Rashtriya Ispat Nigam Ltd (RINL), Tata Steel Ltd (TSL), Essar, JSW Ltd and Jindal Steel (JSWL) and Power Ltd (JSPL) etc will find it easy to control the entire market according to their policies without any “disturbance” from a public sector undertaking.

Again, the strategic disinvestment rules entitle strategic partners to hold managerial control. If we examine the history of strategic disinvestment in India, in the past 26 years, the respective Central governments have given up the responsibility to protest the public sector undertakings and they have sold off public sector assets worth Rs. 1.14 lakh crore. The BJP governments led by AB Vajpayee in the 1999-2004 period and the present regime of Modi, are responsible for the sale of nearly 52 percent public sector entities. The BJP governments which always make rhetoric on their commitment towards the nation managed to sell these companies within only 7 years of their rule.

During the 1999-2004 period, the BJP-led NDA government in Centre had made strategic disinvestment of the Bharat Aluminium Company (BALCO), Hindustan Zinc (both to Sterlite Industries) and Indian Petrochemicals Corporation Limited.  BALCO was incorporated as a public sector undertaking (PSU) in 1965. It was a public sector entity till it was taken over by Vedanta Resources in 2001.

Hindustan Zinc Limited, one of the PSUs which was incorporated from the erstwhile Metal Corporation of India on January 10, 1966, was put up for sale as part of the Government's disinvestment programme. In the sale, Vedanta Resources bagged 64.92 percent of the share.  Again, we have the example of Indian Petrochemicals Corporation Limited, The Madras Aluminium Company Limited (MALCO) etc.

Meanwhile, the Modi government has overtaken the pace of the Vajpayee government. The Modi regime has deepened the magnitude of privatization opening the doors of defence production, railways and airlines, banks and insurance companies. So far, 182 out of 273 products which were made by the public sector ordinance factories are about to be handed over to private entities. This move pushes the public entities into low capacity utilisation and will result in the closure of public sector ordinance factories.

All these government policies and the history of strategic sale in India show that strategic disinvestment is an important way to total privatization.