The Central government, under pressure from key allies and a coalition partner, halts its disinvestment programme.
FOR more than 50 years life in Neyveli, about 200 km from Chennai, has in every conceivable way been linked to the fortunes of the Neyveli Lignite Corporation (NLC). Naturally, the township turned restive when the residents learnt that the government was preparing to sell a part of its stake in the public sector company.
Soon after the Cabinet Committee on Economic Affairs (CCEA) authorised the dilution of the government's stake in the NLC by 10 per cent on June 22, the entire workforce revolted. Nearly 20,000 permanent employees - workers, engineers and officers - and 12,000 contract workers, belonging to 18 organisations, revived the "Save Neyveli" campaign committee of 2002, which had been formed in response to the National Democratic Alliance (NDA) government's move to sell 49 per cent of its stake to a "strategic" partner.
The employees held gate meetings, staged sit-ins and organised fasts. The protests culminated in an indefinite strike from the night of July 4. Recognising the need for broader unity, they sought, and received, the support of traders in and around Neyveli. Within 10 days they had rallied every section in defence of the NLC.
Political parties, too, displayed a remarkable degree of unanimity on the issue. Former Chief Minister and All India Anna Dravida Munnetra Kazhagam chief Jayalalithaa, expressed her party's solidarity with the workers. So, too, did the AIADMK's major allies, the Dalit Panthers of India (DPI) and the Marumalarchi Dravida Munnetra Kazhagam (MDMK). In effect, the solidarity of the unions forced political parties to fall in line.
The wave of discontent following the announcement forced the sole `recognised' union, the Labour Progressive Front (LPF), to respond decisively. Significantly, it ensured that the ruling Dravida Munnetra Kazhagam (DMK), to which it is affiliated, did not remain aloof as in the past on the disinvestment issue. Soon after the June 22 announcement, Chief Minister M. Karunanidhi said ``any deviation'' from the National Common Minimum Programme (NCMP) of the United Progressive Alliance (UPA) government "for whatever reasons would amount to diluting the already agreed principles". He suggested that the divestment be made in favour of NLC's employees. The Union government accepted the suggestion because it would at least set the disinvestment process rolling.
However, the unions summarily rejected the suggestion as "impractical". The workers realised that there was no way they could afford the shares, which were expected to fetch the government about Rs.1,100 crores . (The NLC's net profit in 2005-06 was Rs.702 crores.) I. Nedumaran, president of the NLC Graduate Engineers Association, pointed out that each permanent employee would have to spend nearly Rs.6 lakhs on an average to buy the shares. Even if they bought them, he said, there was every danger of the shares finding their way to the market whenever a worker needed money. Karunanidhi, recognising that his suggestion had misfired, wrote again to Prime Minister Manmohan Singh asking him to abandon the move.
Despite the indefinite strike, the unions agreed to allow the NLC to generate about 100 megawatts of its total capacity of 2,490 MW, in order to meet the needs of essential services in and around the township. In March 2002, the employees had gone on strike, in which all the trade unions participated, for eight days; the DMK and the MDMK were then part of the NDA and Murasoli Maran was then the Union Minister for Industries.
A bandh on July 5 brought life in the lignite town to a standstill. About 1,200 shops and business establishments, 22 schools and the only college in the township - the NLC Jawahar Science College - remained closed.
The next day Karunanidhi said that if the Union government did not accede to the workers' demand, "we [the DMK] are considering whether we should continue in the United Progressive Alliance government and accept responsibility for the decision". Later, he pointed out that he had not threatened to withdraw support to the UPA; he explained that the DMK retained the option of providing "outside support". He also denied that he had cautioned or threatened the UPA government on the issue.
The DMK has adopted a more "pragmatic" approach than the Left to disinvestment in public sector undertakings (PSUs). The two key DMK Ministers in the UPA government, T.R. Baalu and Dayanidhi Maran, participated in the CCEA meeting which approved disinvestment in the National Thermal Power Corporation (NTPC), in July 2004. The two were also present at the CCEA meeting which approved the idea that disinvestment proceeds of profitable PSUs be placed in the National Investment Fund (NIF), in January 2005. The two Ministers were also present at the CCEA meetings in December 2005 and January 2006, which respectively authorised disinvestment in the Power Finance Corporation and the National Mineral Development Corporation.
Incidentally, while no DMK Minister participated in the CCEA meeting of June 22, Union Health Minister Anbumani Ramadoss, of the Pattali Makkal Katchi (PMK), was present. Political commentators wondered how the PMK, which draws substantial support from the Neyveli region, could have afforded to let the move get past it without registering its protest.
The DMK's apparently strident position on the NLC issue, which is in marked contrast to its earlier ambivalence on issues concerning PSU disinvestment, was dictated by several factors. First, since the political opposition in the State decided to support the workers' agitation, and since the Left parties and its affiliate trade unions had stepped up their campaign, the party risked being isolated on the issue. Some observers said that by acting tough Karunanidhi attempted to rebuff the Congress, whose State unit supports the minority DMK government and even wants to be a part of the government. They added that with elections to the local bodies scheduled for October, the DMK could not have afforded to be isolated on the issue.
Second, the LPF's rank and file seemed to have put pressure on the union leadership and this apparently left the DMK leadership with no alternative. Trade union sources told Frontline that the LPF's vacillation in the last five years on issues relating to worker welfare had affected its reputation for collective bargaining. They said any further vacillation would have seriously eroded its base in the NLC.
The third was perhaps the fear that a prolonged strike would disrupt seriously not only the State's electricity grid but also the entire grid in the South. About 40 per cent of the power generated by the NLC goes to the Tamil Nadu grid and this power accounts for about 13 per cent of the State grid's requirement. Significantly, power from the NLC is supplied at rates that are among the cheapest. A senior NLC official said the Tamil Nadu Electricity Board (TNEB) normally backed down power supplied by private power generators because NLC power is cheap, often half the price of power from private suppliers.
Meanwhile, the UPA government's decision to review the disinvestment process shocked those who see it as the crowning glory of economic reforms. Industry organisations and other lobbies mourned that the political process, particularly the compulsions of coalition politics, had derailed the reforms agenda.
However, the objective basis for the political consensus on the issue is the NLC's track record of half a century. Apart from its productive capacity, it has nurtured its organic links with the neighbourhood in which it is located. It supplies water to more than 40 villages around Neyveli, and its facilities, spread on more than 30 square kilometres, provide not only jobs but also education, healthcare, and so on.
The NLC is the acclaimed leader in lignite mining and in the use of lignite, which is considered as "inferior coal", to generate power. It is the biggest open-cast mining operator in the country, the combined capacity of its three mines in Neyveli amounting to 24 million tonnes per annum. It also operates three power stations with a combined capacity of 2,490 MW at the pitheads.
An NLC official told Frontline that the advent of the NLC In 1954 was instrumental in India developing the know-how for lignite mining. The problem-solving skills related to handling a fuel with about 50 per cent moisture content were unknown in India until then. The organisation has come a long way since then. Although the NLC started generating profits only by the mid-1970s, it has yielded profits consistently since.
In the past few years the NLC has ventured out of the State, not only prospecting for lignite but also setting up coal-based power plants. It has found lignite deposits in Rajasthan and Gujarat. Plans are under way to establish mega power plants in Orissa using coal. During the past few years the NLC has invested heavily in expansion projects, including more than Rs.5,500 crores in lignite mine projects and power plants in Neyveli and Rajasthan.
As a result of these investments, the NLC's mining capacity is set to increase by 25 per cent in 2009. The Jayamkondam lignite mining and power project, which was to be implemented by a private energy major, has now been handed over to the NLC. It is also establishing a power plant in Tuticorin, in alliance with the TNEB. A senior NLC official told Frontline that if the plans on the anvil materialised, the NLC could expand its generation capacity to 30,000 MW in the next few years. The fact that only 4,150 MW of this power would be in Neyveli implies that the company will have a presence across the country as a major power utility.
It would not make sense for the owner of a company in aggressive expansion to invest in it while simultaneously deciding to sell it. This is what disinvestment in the NLC would amount to. Selling even a part of a company like the NLC, which is in expansion mode, would imply that its revenue streams in the future are being sold at a discount to whoever may buy into the company. Indeed, the growing realisation that privatisation is nothing but the discounted sale of profit-bearing assets has made privatisation exercises the world over synonymous with scandal.
The paltry gains from a partial privatisation, in this case Rs.1,100 crores, would not be justified by the returns the company has been generating in the past few years. During the past two years the NLC paid Rs.628 crores as dividend to the government, which currently has a stake of 93.56 per cent in it.
V. Muthuvel, president of the CITU-affiliated union in the NLC, said the 10 per cent sale of equity for Rs.1,100 crores would amount to "a bargain sale". He said the company's assets would amount to at least Rs.50,000 crores. A 10 per cent fraction of this would amount to Rs.5,000 crores, implying that the disinvestment would be made at one-fifth the actual worth of the NLC's assets.
Neyveli-watchers point to the fact that it was founded on the basis of a social compact. Nedumaran said nearly 60 villages "disappeared" so that the NLC may be built. "Most people," he said, "were paid a pittance for the land they held as compensation in return for the promise that there would be greater common good."
The NLC's privatisation, he argued, "would be tantamount to a unilateral abrogation of the 50-year-old social compact." He asked: "Did people here make enormous sacrifices so that one day their assets would be handed over to a private company for a song?"
