For restructuring and revival of sick CPSEs some of the strategies adopted by the Government are – Financial restructuring, Business restructuring and Man Power Rationalization. Financial restructuring involves investment in CPSEs by the Government in the form of equity participation, providing loan (plan/non-plan)/grants and/or write-off of past losses as well as changing the debt equity ratio. Measures such as waiver of loan /interest/penal interest, conversion of loan into equity, conversion of interest including penal interest into loan, moratorium on payment of loan/interest. Government guarantee, sale of fixed assets including excess land, sacrifices by State Government, one-time settlement with banks/financial institutions, etc.
Business restructuring involves change of management, hiving off viable units from CPSEs for formation of separate company, closure of unviable units, formation of joint ventures by induction of partners capable of providing technical, financial and marketing inputs, change in product mix, improving marketing strategy, etc. on case to case basis.
Man Power Rationalization – Salaries and wages are often a major component of cost for an enterprise. In order to shed excess manpower, CPSEs have often resorted to Voluntary Retirement Scheme (VRS) from time to time. In case of CPSEs found unviable and where a decision has been taken to close the unit, it is the Voluntary Separation Scheme (VSS) that is introduced. Retrenchment of employees is adopted only as the last resort and in exceptional circumstances.
The Government constituted the Board for Reconstruction of Public Sector Enterprises (BRPSE) as an advisory body to the Government to address the task of strengthening, modernizing, reviving, and restructuring of Central Public Sector Enterprises (CPSEs), and advise the Government on strategies, measures and schemes related to them.
In comparison to the Board for Industrial & Financial Reconstruction(BIFR) which sanctioned 14 cases of revival (between 1992 to 2007), BRPSE has recommended 159 revival cases (between 2005 to 2011). For the purpose of making a reference to BRPSE, a company is considered ‘sick’ if it has accumulated losses in any financial year equal to 50% or more of its average net worth during 4 years immediately preceding such financial year, and it is a company within the meaning of Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).
The concerned Administrative Ministries and Departments are required to send proposals of their CPSEs identified as ‘sick’ for consideration of BRPSE. Other loss making CPSEs may be considered by the Board either suo moto or upon reference by the administrative Ministry, if it is of the opinion that revival and restructuring is necessary for checking its incipient sickness (incurring loss for two consecutive years) and making the CPSE profitable. The Board is expected to make its recommendations within 2 months of the date of receipt of the complete proposal from the Administrative Ministry and Department.
As per the definition of sick CPSEs given above and the performance evaluation of CPSEs, 69 CPSEs were referable to BRPSE. Up to October, 2011, cases of 67 sick CPSEs have been referred to BRPSE, out of which, the Board has made recommendations in respect of 62 cases. Out of these 62 cases recommended by BRPSE, the Government has approved revival proposals of 43 CPSEs and winding up of 2(two) CPSE’s, namely, Bharat Opthalmic Glass Ltd. and Bharat Yantra Nigam Ltd. involving a total expenditure of Rs. 25,105 crore including Rs. 3874 crore as cash assistance and Rs. 21,231 crore as non-cash assistance. The care of the remaining 17 CPSEs is under various stages of consideration and revision.
The approval of the Government in the 45 CPSEs fall under the categories: revival through restructuring package as a PSE; revival through joint venture/disinvestment; revival through merger/takeover and closure.
The BRPSE also reviewed the status of implementation of revival packages sanctioned by the Government in regard to 20 CPSEs: Central Inland Water Transport Corporation Ltd., Hoogly Dock & Port Engineers Ltd., Hindustan Prefab Ltd., Richardson & Cruddas (1972) Ltd., Tyre Corporation of India Ltd., Konkan Railway Corporation Ltd., Biecco Lawrie Ltd., National Projects Construction Corporation Ltd., Tungabhadra Steel Products Ltd., NEPA Ltd., Hindustan Organic Chemicals Ltd., Bengal Chemicals & Pharmaceuticals Ltd., Hindustan Antibiotics Ltd., Hindustan Fertilizers Corporation Ltd., Fertilizers Corporation of India Ltd., Fertilizers & Chemicals Travancore Ltd., HMT Machine Tools Ltd., HMT Bearings Ltd., Praga Tools Ltd., Hindustan Salts Ltd.
The Board reviewed the status of its recommendations in respect of 10 CPSEs – NorthEastern Handicrafts & Handlooms Development Corporation Ltd., Indian Drugs & Pharmaceuticals Ltd. (IDPL), IDPL (Tamil Nadu) Ltd., Bihar Drugs & Organic Chemicals Ltd., Hindustan Fluorocarbons Ltd., Madras Fertilizers Ltd., Brahmaputra Valley Fertilizers Corporation Ltd., HMT Ltd., HMT Watches Ltd., HMT Chinar Watches Ltd.
The Board, furthermore, reviewed the performance of Bharat Sanchar Nigam Ltd., Indian Tourism Development Corporation Ltd., STCL Ltd., Fresh and Healthy Enterprises Ltd. and Sambhar Salts Ltd., suo moto.
Revival Through Merger, Transfer, Takeover
The Government approved the transfer of Bharat Heavy Plates and Vessels Ltd. to BHEL on 26, November 2007 and merger of Bharat Refractories Ltd. with SAIL on 24, April 2008. The Government also approved the transfer of Bharat Wagon & Engineering Co. Ltd. (BWEL) from Department of Heavy Industries to Ministry of Railways on 7, February 2008. Its administrative control was transferred to Ministry of Railways on 13, August 2008. The Government also approved the transfer of administrative control of Hindustan Shipyard Ltd. from Ministry of Shipping to Ministry of Defence on 24, December 2009. The Government, furthermore approved the transfer of Refractory Unit (at Salem) of Burn Standard Company Ltd.(BSCL) to SAIL under Ministry of Steel and the transfer of administrative control of BSCL (excluding Refractory unit at Salem) and Braithwaite and Company Ltd. from Department of Heavy Industry to Ministry of Railways on 10, June 2010.
Turnaround Sick CPSEs
The Government has issued guidelines for declaring a sick CPSE as ‘turnaround CPSE’. These guidelines define a turnaround CPSE as one which is in the list of sick CPSEs of BRPSE, has shown Profit Before Tax (PBT) in each of the three preceding accounting years and has a positive net worth after implementation of the revival package.
Out of the 43 CPSEs (excluding those recommended for mergers), 24 CPSEs have posted profits. 13 CPSEs have been in profits continuously for three years and more out of these 24 CPSEs, MECON Ltd., in particular, led the rest in regard to profit (PBT), during the last three years.
With Inputs from M/o Heavy Industries & Public Enterprises.