Disinvestment Policy: Govt Bars Public Sector Firms From Buying State-Owned Companies

Finance Ministry said transfer of public sector enterprises would defeat the very purpose of the disinvestment policy

PSEs controlled by the government include those where 51 per cent or more ownership is with the Centre/state governments or jointly with central and/or state governments. Image: Getty

New Delhi: The finance ministry has barred public sector enterprises from bidding for other Central Public Sector Enterprises (CPSEs) which are on the block for privatisation, as it would defeat the very purpose of the disinvestment policy.

Stating that transfer of management control from the government to any other government organisation or state government may continue the "inherent inefficiencies" of state-run firms, the ministry said such transfer would defeat the very purpose of the new PSE policy.

"As a general policy, Public Sector Enterprises (PSEs) (Central /State /Joint)/ State Governments/Cooperative Societies controlled by the Governments ... are not permitted to participate in the strategic disinvestment/privatisation of other PSUs as bidders unless otherwise specifically approved by the central government in public interest," the Department of Investment and Public Asset Management (DIPAM) said.

PSEs controlled by the government include those where 51 per cent or more ownership is with the Centre/state governments or jointly with central and/or state governments.

In the past, the government has sold its majority stake in certain CPSEs to public sector companies operating in similar sectors -- which helped it meet the disinvestment target set for a particular fiscal.

In 2001-02, 74 per cent government stake in Indo Burma Petroleum Co (IBP) was sold to Indian Oil Corp (IOC) for Rs 1,153 crore.

More recently, in January 2018 Oil and Natural Gas Corp (ONGC) bought the government's entire 51.11 per cent stake in HPCL for Rs 36,915 crore.

In March 2019, state-owned Power Finance Corporation (PFC) had acquired the government's 52.63 per cent equity in REC for Rs 14,500 crore.

As per data available, between 2000-01 to 2019-20, the government has sold its entire stake in nine CPSEs to other similarly placed public sector enterprises, garnering a cumulative Rs 53,450 crore.

The DIPAM, in an office memorandum, said in general PSEs suffer from the constraints of fresh capital infusion, as well as lack of innovation, modern technology and the ability to diversify services and production.

"Due to multiple systems for accountability, these enterprises are commercially risk-averse and lack adaptability in a dynamic business environment. As a result, useful productive assets remain locked in such PSEs resulting in sub-optimal realisation of valuable economic opportunities," it said.

The PSE policy announced in February 2021 outlined four strategic sectors in which "bare minimum" number of CPSEs will be retained while the rest would be privatised or merged or made subsidiary of another CPSE or closed down.