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Recommendation of the COFR made in its report of December 2001
Public Sector Undertakings
GOA had promoted 49
Public Sector Undertakings (PSUs) over the years. A majority of
PSUs are under the administrative control of the Industries
Department while the rest are under other departments viz.
Co-operation, Power, Transport, Social Welfare, PWD, Education etc.
Most of the PSUs were incorporated as registered companies, a few
co-operatives and four functioned as statutory bodies.
In the
post-independence period, the philosophy of the Govt. was that the
public sector would be the dominant sector in the country and PSUs
would be the engines of growth. While initially making a mark the
PSUs had indeed contributed to the development of the State. Over
the years, however, these PSUs began functioning more in the lines
of the Govt. departments rather than as companies and in the
process were sucked into the typical problems that plagued the
former. As a result, almost all of these PSUs are facing bankruptcy
thereby becoming a heavy burden on the State. A look at their
macro-indicators will tell the story.
1) PSUs - 49
2) Total
capitalization - Rs. 4,500 Crores
3) Employees - 54,500
4) Total
dues to financial institutions - Rs. 1,500 Crores
5) Total
accumulated loss - Rs. 4,060 Crores
6) Total
receivables - Rs. 1,000 Crores
7) Number
of PSUs having negative networth - 30
The Jayanta Madhab
Committee (Report of the Advisory Committee on Industries, August
1996) looked into the causes of poor state of health f the
enterprises under the Industries department. The followings were
identified as the main causes :
Management failure
in all fronts
Inefficient
financial management & control
Lack of work culture
and absence of systematic training programme
Excessive overheads
and overstaffing
Inadequate / poor
support system
Non-availability of
working capital
12.4 The above
mentioned Committee suggested that PSUs be grouped into three
categories :
Those which cannot
be revived and revival makes n economic sense
Those which can be
revived with restructuring and / or modernization
Those which are
profitable
The Committee made
suggestions for each of the PSUs under the Industries department.
However, GOA either did not take any action or at the most took
only half hearted measures. The conditions of PSUs have since
worsened to such an extent that their indebtedness have gone up
several fold with salaries to the employees having remained unpaid,
in some cases, upto 90 months. The GOA must pay serious attention
to this issue and take necessary, even if unpalatable, steps
immediately. The more the delay, the greater the burden on the
Govt.
During the last 50
years, one important lesson has been learnt, i.e. Govt. cannot run
industries profitably, except perhaps a few. The work culture and
the motivation factors are different between Govt. & Private
industries. While Govt. has services and social welfare index in
mind, industry has profit as its guiding motivating factor. For
PSUs to run profitably, Govt. has to provide targets and the
freedom to operate to achieve such target. Lately, Govt. of India
has been trying to work on this concept through a system of signing
Memorandum of Understanding with PSUs with a degree of success.
Needless to say, Govt. has to be honest in not interfering with the
working of PSUs, once the MOU is agreed upon.
It has to be
recognized that during the course of last 10 years, Govt's
philosophy has undergone some changes, giving much more emphasis to
the private sector for engineering growth, with Govt. remaining a
facilitator. Industries & services, which are better managed by
the private sector, are being disinvested by Govt. Disinvestment as
a means of, reaching a situation of economic viability, has also
been advocated so as to reduce the fiscal burden on Govt. of India.
It is in this context that a Ministry of Disinvestment has been
created.
Of the 49 PSUs, 7
namely, (a) Assam State Electricity Board, (b) Assam State
Transport Corporation, (c) Assam Tea Corporation, (d) Assam
Industrial Development Corporation, (e) Assam Small scale
Industries Development Corporation, (f) Assam Financial Corporation
and (g) Assam State Housing Board, are the most important.
To-gather, they hold 86 % of the total capitalization of Rs. 4,500
Crores; 82 % of labor force; 83 % of dues to the financial
institutions and 91 % of total accumulated losses amounting to Rs.
4,060 Crores. Except AIDC, all the other six have lost their
net-worth. If these 7 PSUs can be revived profitably, the problem
will be substantially sorted-out.
There are 3 PSUs
which are earning profits. They are (a) Assam Gas Company, (b)
ARTFED, and (c) Assam Co-operative Jute Mills. Four others, (d)
Assam Petrochemicals Ltd, (e) Assam Textbook Production &
Publication Corporation, (f) Assam Polyester Co-operative society
and (g) Assam State Warehousing Corporation are marginal cases.
With all these, Govt. of Assam should (i) wherever dues are
outstanding, in terms of receivables or subsidy, pay up
immediately, (ii) enter into MOUs and (iii) give operative freedom
with no Govt. interference. All these units should be free to
choose professional management. In case f Assam Petrochemicals a
study needs to be undertaken to reorient the production process.
GOA can consider joint venture arrangements, giving 51 % to the
private sector.
There are 4
corporations which have welfare implications. (a) Assam Plains
tribes development Corporation, (b) Assam State Development
Corporation for SC Ltd (c) ) Assam State Development Corporation
for OBC Ltd (d) Assam Minorities development & Finance
Corporation Ltd. All of them are facing severe financial crisis.
The very fact that these are welfare institutions warrant that they
should be treated in that line of reasoning. There should not be
any financial lendings; the aim should be at promotion of
entrepreneurial skills, training of self-help groups, encouraging
the more economically deserving to eventually turn professionals
in business exercises etc. To-gather with these there should also
exist a conducive environment for the development of these
corporations. There are about 500 employees in these 4
corporations; more than half need to be reallocated elsewhere. At
the same time, monetary lendings should be carried-out only AFC,
AIDC & NEDFI.
12.10.1Assam Khadi & Village Industries Board is in a severe
financial crisis. It has 207 indigenous and 9481 assisted production
units, creating an employment potential about 1 lakh people. It is
inefficiently managed even as it lacks appropriate support from Govt.
and the Khadi Commission. The receivables are mounting. It has to
professionalize its management with modern technology. With some
financial input it could turned around. On the other hand it can be
treated as a welfare organization without having any powers of
lending. Attention must be paid to recover the dues amounting to Rs.
26 Crores. These recoveries can pay-off a major share of existing
loan liabilities of Rs. 28 Crores.
12.11.1The largest of PSUs is the Assam State Electricity Board
(ASEB) which is a statutory board. Total capitalization amount to
Rs.3180 crores; employees number 19222; loan liabilities to the
financial institutions is Rs.1019 crores and accumulated loss is
Rs.3124 crores. Against the installed capacity of 590 MW, generation
is between 120-150 MW showing a plant load factor of 18-25 per cent
or less. SEBs which have shown better performances generally obtain a
load factor of 70-80 per cent. Even with this low capacity
utilization, transmission and distribution losses are as high as 45
to 50 per cent, at least half of which are in the form of theft or
due to uncollected dues. While ASEB's monthly expenses are around
Rs.82 crores, it collects only about Rs.40 cores, leaving the other
Rs.42 crore every month to add to the accumulated loss figure. The
situation is certainly disastrous. A number of studies were carried
out on this account. The Jayanta Madhab Committee (August 1996) had
made some specific suggestions. But lack of appreciation for urgent
action as well as lack of political will to tackle ASEB's burgeoning
problems resulted in this disastrous state of affairs.
12.11.2 Since power is of vital necessity for the functionings of
everyday life, for the progress of industry and for the ultimate
development of the State and since ASEB has the monopoly on
generation of power at the moment, there is no other option but to
improve the functioning of ASEB. An immediate restructuring is,
therefore, necessary. ASEB is far too small an organization in terms
of its generating capacity. Its 590 MW installed capacity is
considered in these days as equivalent to only one unit. Some units
are as big as 1000 MW. ASEB has very high number of employees as
compared to its generating capacity. COFR does not envisage that much
benefit will follow if recourse is taken to divide ASEB into two or
three Inter-dependent will remain organizations. If a single
organization cannot be managed well then there hardly remains any
justification that three inter-related organizations will be managed
proficiently. In fact, if at all any such artificial division is
resorted to there will be an enormous increase in overheads. What is
needed is (i) an efficient management superstructure with good
financial control, (ii) a healthier works culture,(iii) a scientific
financial restructuring and support and finally, (iv) making
management accountable to the State in terms of its performance.
12.11.3 Instead of attempting any area based or other type of
division ASEB should immediately, set up three functional Strategic
Business Units; (i) generation (2) transmission and (3) distribution
each of which should aim at self-sufficiency over a reasonable period
of time. ASEB however, would remain one single unit. Its Board of
Directors should consist of a CMD, Directors of the three Business
units, and Commercial and Financial Directors. The Government must
treat ASEB as an independent company. It would be prudent if GOA were
to design and sign, on the basis of above objectives, an MOU with a
new management, giving clear targets, at least for three years. There
are enough materials to design such an MOU within the Department. If
the management fails to achieve the set targets, the management can
be changed and disinvestments mooted.
12.11.4. COFR recommends that GOA and ASEB should engage themselves
to settle the outstanding dues on account of (a) rural
electrification; (b) government/local bodies outstandings and (c)
others. To an extent, GOA can convert some of the outstanding dues
into equity. ASEB, on the other hand, must make an all-out effort to
collect not only its outstanding dues but also the right dues. Many
of its 19000 staff can be redeployed to various villages/locations to
collect dues;
12.11.5. COFR recommends that ASEB provide non-tamperable meters to
all industries in the first phase; it should extend this to all
connections in the second phase. ASEB should specially complete the
on going projects, Priority should be given to Karbi Langpi. It can
negotiate for getting gas supply for Lakwa. The distribution network
requires improvement.
12.11.6. ASEB's workforce is still very large. It must be reduced
further. Its establishment cost also needs to be reduced by various
means.
12.12.1. There three state financing institutions: (i) Assam
Industrial Development Corporation (AIDC): (ii) Assam Financial
Corporation (AFC) and (iii) Assam Small Industries Development
Corporation (ASIDC). All have accumulated huge losses and the last
one, ASIDC, is hardly in operation. Both AIDC and AFC have relevance
and an important role to play in the development of Assam and parts
of North-East. AIDC should concentrate on the promotional role and
remain a conduit for channeling development incentives and finances
made available by the Government. It should provide equity support to
industries but lending should be limited within the amount it can
mobilise. It should also take the promotional role of ASIDC and the
Assam Hills Small Industries Development Corporation.
12.12.2. Most of the State Finance Corporations in India are not
doing well. Only a few are making profits. GOI is well aware of this
and indeed a bill to amend the State Finance Corporation act is
pending in Parliament. In the meantime, the Small Industries
Development Bank (SIDBI) has been asked to look into the finances and
come up with some restructuring proposals. AFC is also one of the
SFCs which SIDBI is currently studying. In the meantime, AFC must
turn itself into a professional organization and collect it
receivables amounting to over Rs.148 crores.
12.12.3. If the promotional aspect of ASIDC can be merged with AIDC,
ASIDC will not have much relevance anymore. Some of its staff can be
transferred to Infrastructure Development Corporation. The same is
true of the Assam Hills Small Industries Development Corporation. The
properties of ASIDC can be sold to pay the dues to its employees.
ASTC performed a
pioneering role and served well in the past. As usual with all
PSUs, over the years, management failed. There were far too many
employees per bus: 1:40 as against the national ratio of 1:8 of in
better managed State Transport Corporations, 1:4. Even in Assam
private sector operates at a much lower ratio. This State of
affairs is also the result of lack of maintenance of the buses and
corruption. As a consequence of this the accumulated loss rose to
Rs.356 crores, with liabilities of Rs.74 crores. COFR was informed
that some reform measures have been initiated. If these steps thus
initiated do not result in improvement within six months, COFR
suggests that the corporation should be wound up. The workers can
form a number of co-operatives and the ASTC can, instead of VRS,
provide running buses and bus routes to these co-operatives. ASTC
can lease out its valuable land, premises, garages to the private
operators. It fact, this the biggest success story in Assam i.e.
development of the private transport sector. All that is required
is proper regulation in terms of fares and routes.
The Assam Tea
Corporation (ATC) started with noble intentions and for some years
did well. The present situation is serious. Its capital investment
has totally eroded due to huge accumulated losses amounting to over
Rs. 62 crores. The present net worth is negative at Rs.35 crores.
It has liabilities to FIs the tune of Rs.34 crore and has excess
staff of over 3000. Sixty per cent of its tea bushes are over
hundred years old. They should have been replanted long ago. One
positive point is that these gardens have huge vacant virgin land
(60%). This is a great asset. Width proper valuation made, ATC
should be disinvested.
12.15 The Assam State Housing Board is yet another example of bad
planning and poor management. Despite having good assets, its
accumulated losses run well over Rs.11 crores and its dues to FIs
amounts to Rs.57 crores. Of the 1600 houses it constructed, it earns
a mere Rs.2.8 Lakhs/month as rent while its expenditure per month is
Rs.25 Lakhs. Over a hundred employees are in excess. With proper
management and a little support from GOA the Board can be turned
around. It should sell these apartments/houses on the basis of
valuation done by a professional valuer.
The Assam Tourism
Development Corporation has an important role to play. It should
remain as a promotional organization rather than getting involved
in lending operations. It should be properly capitalized with
professional management. The same is true for the Assam Electronics
Development Corporation. This Corporation can serve as a service
organization to the government's massive computerization programme
which, in any case, will require some organization to provide the
support. Alternatively, disinvestments can be considered.
12.17 There are 4 PSUs, namely I) Assam Government Construction
Corporation: ii)Assam Police housing Corporation: iii) Assam Fishery
Development corporation and iv) Assam State Minor Irrigation
development Corporation, which are in severe financial crisis with
accumulated losses amounting to well over Rs.26 crores. These
corporations can be disbanded.
12.18. The setting up of the Assam Urban Water Supply and Sewerage
Board was in the right direction but due to poor planning,
construction and maintenance and above all, poor management, the
Board is in disrepute and has already started accumulating losses. It
has huge loan liabilities. Efforts should be made to revitalize the
board. The same is true of Assam Government Marketing Corporation. It
has very good assets, but requires commercial orientation of
management. It has high receivables. If these can be collected, and
the number of employees reduced, the corporation can still be made
viable. GOA should sign a MOU with a new management.
12.19. There is one group of companies/corporation which need GOA's
immediate support and attention. These units are incurring losses for
quite some time. To some of these GOA ows money. In fact, these units
can be revitalized if GOA's dues are cleared, government purchases
are compulsorily routed through them, tax incentives are given and
professional management provided. These organization are the
following:
Assam
Agro-Industries Development Corporation
Assam Seeds
Corporation
Assam Livestock &
Poultry Development Corporation
Assam Textbook
Production and Publication Corporation.
These organizations can be considered for disinvestments
after they have turned the corner and have started making profit.
Besides the above,
there are sixteen other PSUs. Some amongst them are inoperative;
others are in severe financial crisis. All have accumulated huge
losses and eroded their net worth. There are huge financial and
statutory liabilities. In any case none of them is economically
viable under the present scenario. For them there is no option but
to sell off or to liquidate their assets. The sale proceeds should
be applied to first pay off the financial institutions/creditors as
they have the first charge. If there is any balance it may be
utilized to pay off the financial institutions/creditors as they
have the first charge. If there is any balance it may be utilized
to pay off the employees. In order to scale down the liabilities to
the financial institutions, GOA should negotiate with each of them
for waiver of both interest and penal interest and, if possible,
some part of the principal amount also. The rest will have to be
paid.
Inspired by Fabian
socialist idealism governments of many developing countries took up
certain business ventures of their own in addition to promoting
business units in the private sector. This happened particularly in
the fiftees and the sixtees of the last century. These units did
make a dent initially and aided the process of economic development
of their respective countries. However, as time passed they
deteriorated in their performance and ultimately became a burden on
the governments so that their liabilities had to be made good or
taken over by the respective governments. The governments therefore
started to disenagage themselves from such units. GOI started this
process only recently through the Disinvestment
Commission/Ministry. In Assam the Jayanta Madhab Committee (1996)
gave a road map to GOA to come out of the entanglement with
loss-making PSUs. But GOA did not make any serious attempt to
follow the road map. Rather the half hearted measures that GOA took
yielded the opposite results. The health of the PSUs worsened and
the losses multiplied.
In the foregoing
paragraphs COFR has analyzed each of the PSUs and has made certain
recommendations. What is common to the PSUs which are still or can
be made profitable are the following : (i) install professional
management (ii) provide both financial and fiscal support (iii)
give freedom to operate and (iv) make them accountable. GOA must
sign MOUs with each of the PSUs detailing targets for achievement,
stating the financial and other supports to be provided by GOA and
working-out a mechanism for monitoring and reporting progress. If
the management fails to achieve the targets within a reasonable
time, the management has t be changed. An alternative will be to
convert the PSU into a joint sector enterprise giving the private
sector 51 % by way of equity share.
COFR identified 16
PSUs for immediate disinvestments because they have accumulated
huge losses, eroded their net-worth completely and left no economic
relvance under the present scenario. These PSUs are :
STATFED
Assam State Textile
Corporation
Assam State Weaving
& Manufacturing Company
Cachar Sugar Mills
Ltd
Assam Spun Silk
Mills Ltd
State Fertilizer &
Chemicals Ltd
Assam Polytex Ltd
Assam Syntex Ltd
Fertichem Ltd
Assam Conductors &
Tubes Ltd
Nagaon Coop Sugar
Mills Ltd
Assam Coop Sugar
Mills Ltd
Assam Coop Spinning
Mills Ltd
Swahid Kushal
Konwar Samabay Sutakal Ltd
Assam Small
Industries Development Corporation Ltd
Assam Tea
Corporation
In the case of 30
other PSUs, recommendations have been made for revitalization. If
that should fail and no progress is shown in 2 years, each PSU
should also be included in the list for immediate disinvestments.
12.25.1 COFR suggests that in the interest of transparency and in
order to avoid incidence of corruption, GOA should set-up a three
member Disinvestments Commission / Committee. The Industry Minister
should be the Chairman of the Committee. The other 2 members should
be the following : One current Member from the opposition party in
the Assembly and the second, a respectable Member of the public.
12.25.2 The secretariat should be provided by the Public Enterprises
department. This Disinvestment Committee / Commission's functions
will be as follows :
Appointment of
independent professional valuer to assess the worth of each PSU
Negotiation with
FIs about their dues to bring them down to bare minimum and to
devise a phased repayment schedule.
Assess the
receivables and arrange to collect the receivables through normal
& legal means ; ether through the PSUs or by the Committee
assigning staff.
Disinvestment /
disbandment of the PSUs
The principle of
disinvestments of the proceeds of ant sale of a PSU should be to
first pay-off the creditors and if anything is left over to pay
the employees.
Assess the current
number of employees in the PSUs. Many of them had left earlier on
their own. After such an assessment, some of them can be
relocated, if necessary after some training in other departments /
organizations of GOA.
COFR recommends
that for those surviving PSUs, a Chairman-cum-Managing Director
(CMD) be appointed, who should be selected by the Public
Enterprises Selection Board. The CMD should be a professional
person. He should be responsible to and also report to the PSUs
Board, where GOA can have a representative. The CMD must ensure
that accounts are up-to-date and published every year on time.
Each PSUs
performance should be reviewed by GOA or in case of those having
public shareholding, by the shareholders on an annual basis.
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