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P. Manoj

With the exception of Modern Food Industries Ltd, the Government has been tackling only profit-making PSUs for disinvestment so far.

NEW DELHI, Feb. 12

THE bidding result of the ailing Paradeep Phosphates Ltd (PPL) will enable the Union Government to frame the rules for disinvestment in sick public sector units and determine whether such entities should be kept afloat through strategic sale or closed down.

With a series of sick PSUs being lined up for strategic sale, the Government has been under pressure from bidders to incorporate a "post-closure adjustment'' in the shareholders' agreement which has the potential to drain the Exchequer of considerable sums of money instead of bringing in cash.

Such an "adjustment'' will entitle the successful bidder to claim refund for the losses incurred by the company from the date of the last published financial results till the date when the price bids are invited from the bidders.

And such a refund will be linked to the extent of equity being sold by the Government, say 26 or 51 or 74 per cent.

The "post-closure adjustment'' has been incorporated in the case of PPL, the first genuine case of a heavy loss-making entity being put up for sale.

In this case, the bidders had to bid on the basis of the last published balance sheet of the company as on March 31, 2001 which showed an accumulated loss of Rs 431 crore.

According to Government sources, PPL had incurred losses of about Rs 72 crore during the first six months of the current fiscal and the losses have been mounting at the rate of Rs 10-12 crore per month.

As per the "adjustment'', when the balance sheet of the company for the current fiscal is finalised after the strategic sale, the variation in the net worth of the company from the last published annual accounts will be made good to the successful buyer to the extent of the equity being sold to him.

For instance, if the highest bid for buying 74 per cent equity in PPL from X (the highest bidder) was worth Rs 200 crore and the company had incurred a loss of Rs 150 crore for the whole year, the Government will refund 74 per cent of the bid amount of Rs 200 crore.

The net result is that the bidder would have gained strategic control over a big but heavily loss-making company by paying a considerably less amount.

"This has the danger of draining the Exchequer of huge sums of money, besides proving to be a big political embarrassment to the Government,'' the sources said.

In the case of PPL, the loss incurred by the company so far comes to around 70-80 per cent of the price quoted by the lone bidder, the Zuari Chemicals and Fertilisers- OCP Morocco combine, and the extent of refund will be quite high.

"At its next meeting, the CCD will have to take a decision on whether it is worth selling the company or close it down,'' the sources said. "Instead of refunding huge money back to the bidders, if the amount realised from liquidation of the company would enable the Government to fund a voluntary separation scheme (VSS) for the workers and clear other statutory dues at less cost, we would resort to closure," they added.

As far as possible, the Government would try and run the company with a new partner, since this would take care of the employees and bring it tax money.

In the case of Modern Foods, it had to refund about Rs 16 crore to Hindustan Lever Ltd (HLL) as "adjustment'' after strategic sale.

The Government is also understood to be in the process of paying about Rs 8 crore to Sterlite Industries Ltd, which acquired strategic control of Balco.

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