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Govt decides to sell 10% stake
in NALCO and NLC to raise Rs. 2500 crores
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Communists oppose the move and
ask for immediate roll back of decision
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Analysts see that the
Government is trying to be assertive with the communists
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The Cabinet Committee on Economic Affairs (CCEA) agreed to allow the
Government to
disinvest 10% of two profit making public sector non-navratna companies to
raise resources for the National Investment Fund (NIF) mostly to fund social
sector expenses. With this decision, the Government plans to disinvest small
stakes in the National Aluminum Company Ltd (Nalco) and the Neyveli Lignite
Corporation (NLC). This announcement is in addition to the previously announced
disinvestment of stake in the National Thermal Power Corporation, the Power
Finance Corporation, and the National Mineral Development Corporation.
Announcing this decision, Finance Minister P. Chidambaram was cautious on the
Government’s approach to disinvestment. He said “The sell-off process will
depend on the prevailing price and the advice of the lead managers. The
government will choose the appropriate time. We will not rush it.” After the
10% sale, the government’s interest in NLC will be reduced to 83.56% and 77.15%
in NALCO. Further, there is a provision in the NALCO sale to split the shares
before listing and the Government’s planned ratio was not disclosed as
consultations with several ministries such as mines, expenditure, and heavy
enterprises is required to arrive at the right number. Chidambaram disclosed
that 75% of the returns on the disinvestment would go to the NIF and the rest
used to revive ailing PSUs. The disinvestment will fetch Rs. 2500 crores (USD
543 million).
Chidambaram also said that the Government will stick to the outcome of a
meeting with the communists on November 21, 2005 when it was agreed that small
stakes in non-navratna non-profit making public sector utilities (PSU) may be
disinvested to fund social projects. The communists, whose support is essential
for the survival of the federal government, oppose disinvestment of any kind
but especially the navratna PSUs. The navratna PSUs, loosely translated as the
nine jewels, are the most prestigious Government owned companies that are
considered prestigious, strategic, and vital to the nation.
Analysts see this as newfound assertive behavior of the Government and also a
signal to investors worldwide that it is committed to economic reforms.
Starting from the Prime Minister, it has shown its
displeasure at political grandstanding over several internal and foreign
policy matters.
Meanwhile, communist parties and their acolytes in trade unions had
choreographed opposition the disinvestment plan and accused Chidambaram of
impropriety and working for personal gain. They say that this decision will
benefit Vedanta Resources which owns former PSU Bharat Aluminum (BALCO). So the
assumption is that since Chidambaram is on Vedanta, he stands to gain
personally. The communists, on predictable lines, demanded immediate withdrawal
of the CCEA decision, claiming it violated the national common minimum program
(NCMP). Unions struck out and production of finished aluminum stopped
completely in NALCO's 950 ton smelter plant in Orissa but allowed 153 executive
rank officers and 106 casual workers to run six power plant units, which
produced around 650 mw power.
Nalco’s net profit rose 26.7% to Rs 1,565 crore in 2005-06 on a turnover of Rs
5,324 crore. However, NLC’s profits dipped from Rs 1,215 crore in 2004-05 to Rs
702 crore in 2005-06.
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