Jayalalithaa has proposed to buy 5% equity of NLC

The offer of Chief Minister Jayalalithaa to purchase five per cent equity of the Neyveli Lignite Corporation (NLC) has to be examined as per regulations of the Securities and Exchange Board of India (SEBI), according to Union Minister for Coal Sriprakash Jaiswal.

The offer, conveyed in Ms. Jayalalithaa’s letter to Prime Minister Manmohan Singh last week, was that the Centre should consider giving the five per cent shareholding in the NLC to Tamil Nadu State Public Sector Undertakings such as Tami Nadu Industrial Development Corporation (TIDCO), State Industries Promotion Corporation of Tamil Nadu (SIPCOT) and Tamil Nadu Industrial Investment Corporation (TIIC).

Protesting against the Centre’s decision to sell NLC’s stake, a number of trade unions in the Central power utility has announced that they would go on an indefinite strike from Wednesday (July 3).

Asked for reaction to Ms Jayalalithaa’s proposal, Mr. Jaiswal [under whose Ministry comes the NLC] told The Hindu on Saturday evening that the question whether any State PSUs could pick up stake in a Central undertaking should also be examined. He reiterated his position that it was “out of compulsion” of the SEBI regulations that the disinvestment had to be made. The NLC being a Navratna company, there had to be a minimum of 10 per cent public shareholding, the Union Minister pointed out.

Asked if he was aware of the precedent of State PSUs picking up stake in Central PSUs, Mr. Jaiswal replied in the negative.

At a press meet in Chennai on Saturday, Mr. Jaiswal’s colleague and Union Minister of State for Industry and Commerce E.M. Sudarsana Natchiappan said the Centre would happily sell five per cent stake to the State government.

Asked to elaborate the basis on which he made the statement, Mr Natchiappan told The Hindu on Sunday that what he basically meant was to welcome Ms. Jayalalithaa’s offer. However, he also conceded that the offer had to be studied by the Department of Disinvestment in the Union Finance Ministry whether it was in tune with the SEBI regulations.

Of the five per cent, the Life Insurance Corporation was expected to take more than 0.74 per cent, he added.

His Saturday observation was made while interacting with political journalists and that was not the appropriate occasion to explain economics behind the Centre’s move, Mr Natchiappan explained.

No precedent?

Not just Mr. Jaiswal but also senior officials of the NLC and the State government are apparently unaware of any precedent of State PSUs buying stake in Central PSUs. However, a senior policymaker says that there have been instances of joint venture between the Centre and State governments.

The oldest example is the Damodar Valley Corporation (DVC), an entity set up by the Union government and the West Bengal and Bihar (now Jharkhand) governments in July 1948.

In the context of Tamil Nadu, the NTPC and the NLC, two Central undertakings, in the last 10 years, floated along with the erstwhile Tamil Nadu Electricity Board (now Tamil Nadu Generation and Distribution Corporation) two special purpose vehicles - NTECL (NTPC Tamil Nadu Energy Company Limited) and NTPL (NLC Tamil Nadu Power Limited). In respect of the NTECL, the equity is shared jointly by the NTPC and the Tangedco while it is 89:11 for the NLC and the Tangedco in the case of the NTPL. The NTECL is implementing 1,500-megawatt Vallur project near Chennai and the NTPL, 1,000-MW Tuticorin project, both coal-fired.

But, what the officials feel is that by disinvesting five per cent stake, the Centre does not stand to gain much, except for complying with the 10 per cent rule. The proposed sale will not fetch, under the present market conditions, beyond Rs. 470 crore, an amount that the NLC paid as dividend during 2011-2012, they add.