By Nageshwar Patnaik in Bhubaneswar, July 25, 2020: The Public Sector Units (PSU) have been the lifeline of India since independence. Besides contributing to Gross Domestic Product (GDP) growth, the PSUs ensured self-reliance in certain key sectors.

The importance of PSUs cannot be gauged from the lens of quantifiable numbers alone as in times of wars or disasters, PSU sector has shown solidarity and character in handling such events by improvising and ensuring continued support to the country.

During 1965 and 1971 wars with Pakistan, the PSU sector only catered food and ensured security to the denizens in the most war ravaged Rajasthan, Punjab, Jammu & Kashmir by providing job security and advancement during such times of panic and stress.

The COVID-19 pandemic that has already affected 1.5 crore people across the world and killed more than six lakh people in the world. In India, the positive case are pegged at 1.5 lakh and the virus killed over 30,000 Indians so far.

However, the pandemic raises alarms over the ongoing privatization efforts and highlights the need for substantial public investment and subsidies in the economy. It also calls for a re-look at the move to sell off the public sector units (PSU) to raise resources.

Since 2014, Modi government’s strategic disinvestment approach has been to sell minority stakes in public companies to raise revenue, while retaining management control. the government raised Rs. 2,79,622 crore from the disinvestment of PSUs in 2014-2019, compared to Rs 1,07,833 crore collected during 2004-14. This is like selling the family silver and that at some point there would be nothing left to sell and raise funds for development.

However, times have changed with the Covid-19 pandemic. The paradigm shift from the strategic disinvestment policy of the government at this juncture clouds the intention behind PSU reforms. The Government intends to mop up resources by selling both profit and loss-making companies PSUs to meet the growing expenditure.

The Modi government’s attempt to privatize the state-run Neelachal Ispat Nigam Limited (NINL) – a potential economic goose that could lay the golden eggs, is a classic example.

The government is keen to float a request seeking EoIs (Expressions of Interest) from potential bidders for the strategic disinvestment of Odisha based NINL soon. However, the move’s success will largely depend on the economic situation in the wake of the COVID-19 pandemic.

In January, the Cabinet Committee on Economic Affairs chaired by Prime Minister Narendra Modi had given ‘in principle’ approval for the strategic disinvestment of the NINL, which virtually has gone sick due to total mismanagement.

Employee unions and executive associations at NINL have claimed that the Odisha state government, OMC and IPICOL have already infused capital proportionate to their shareholdings, but it is MMTC which is not releasing funds required to meet the working capital expenditure of NINL.

MMTC as main promoter invested only Rs. 368.76 crore and holds 49.78% equity capital in NINL but huge commission extracted by MMTC on purchase of raw material (3%) and sale of finished goods (3%) and interest paid to MMTC since 1996 rendered NINL a loss making PSU.

Total commission paid to MMTC till now is about Rs 944 crore and total interest paid on account of working capital loan to NINL is pegged at Rs 1525 crore. Interestingly, the commission and interest paid to MMTC till date fully compensates the accumulated loss of NINL.

Such bizarre arrangements in India Inc is perhaps unheard of. That too, the public sector company taking a ride on another public sector to improve its bottom lines is a rarity. Being the principal promoter, MMTC was supposed to contribute to the betterment of NINL. But it opted to kill the golden goose.

The main reason of NINL losses is procurement of raw material from outside market instead of using from own mines. The promoters of NINL expect to make money by selling the captive mines worth over Rs 5000 crore through NINL disinvestment process.

NINL has its own mines of 874.29 hectares with 110 million tons of estimated reserve and the mining lease is for 50 years. Mining lease was granted to NINL in 1999 and revised Mining Lease of 874.29 Ha with about reserve of 110 million ton was granted in 2009. Ironically for a PSU, it took two decades to get all clearance for mines. In 2019 Stage-II clearance were granted, but the management did not start the mines operation citing crunch of fund. Consequently, the NINL has incurred loss more than Rs.1500 crore towards procurement of Iron Ore.

NINL made net profit up to 2011-12 and is always a positive EBITDA company. But due to the factor of overburden of liabilities along with the other factors, NINL has made consecutive loss from 2012-13. Interestingly, the total loss of Rs 1653 crore almost compensate the amount paid to MMTC as commission and interest.

Significantly, NINL has 2500 acre undisputed land sufficient for expansion up to 10 MTPA (land was acquired for foundation of 2nd PSU Steel Plant in Odisha). The Employee Unions and Executive Associations at NINL have consistently pleaded for transfer of shares by MMTC and other PSUs to SAIL/RINL/NMDC, which will be a transfer from one PSU to another PSU only.

Merger with SAIL/RINL could have been the right step towards government objective of single state owned steel manufacturer to bring efficiency, productivity, and profitability of the NINL.

It is needless to say that the NINL can easily be turned out to be profitable PSU if the promoters ensure full capacity utilization and by making captive mines operative. The multi-million rupee question is whether the Modi government would see the Mecon’s report valuing the NINL assets worth Rs 8500 crore and ensure to stop privatization at throw away price.