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Recommendation of the COFR made in its report of December 2001

Public Sector Undertakings

    1. 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.

    2. 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

    1. 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 :

  1. Management failure in all fronts

  2. Inefficient financial management & control

  3. Lack of work culture and absence of systematic training programme

  4. Excessive overheads and overstaffing

  5. Inadequate / poor support system

  6. Non-availability of working capital

12.4 The above mentioned Committee suggested that PSUs be grouped into three categories :

  1. Those which cannot be revived and revival makes n economic sense

  2. Those which can be revived with restructuring and / or modernization

  3. Those which are profitable

    1. 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.

    2. 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.

    3. 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.

    4. 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.

    5. 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.

    6. 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.

    1. 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.

    2. 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.

    1. 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:

    1. Assam Agro-Industries Development Corporation

    2. Assam Seeds Corporation

    3. Assam Livestock & Poultry Development Corporation

    4. Assam Textbook Production and Publication Corporation.

These organizations can be considered for disinvestments after they have turned the corner and have started making profit.

    1. 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.

    2. 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.

    3. 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.

    4. 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 :

    1. STATFED

    2. Assam State Textile Corporation

    3. Assam State Weaving & Manufacturing Company

    4. Cachar Sugar Mills Ltd

    5. Assam Spun Silk Mills Ltd

    6. State Fertilizer & Chemicals Ltd

    7. Assam Polytex Ltd

    8. Assam Syntex Ltd

    9. Fertichem Ltd

    10. Assam Conductors & Tubes Ltd

    11. Nagaon Coop Sugar Mills Ltd

    12. Assam Coop Sugar Mills Ltd

    13. Assam Coop Spinning Mills Ltd

    14. Swahid Kushal Konwar Samabay Sutakal Ltd

    15. Assam Small Industries Development Corporation Ltd

    16. Assam Tea Corporation

    1. 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 :

      1. Appointment of independent professional valuer to assess the worth of each PSU

      2. Negotiation with FIs about their dues to bring them down to bare minimum and to devise a phased repayment schedule.

      3. Assess the receivables and arrange to collect the receivables through normal & legal means ; ether through the PSUs or by the Committee assigning staff.

      4. Disinvestment / disbandment of the PSUs

      5. 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.

      6. 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.

    1. 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.

    2. 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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