Disinvestment

A twist in the sale

Print edition : August 09, 2013

Workers marching to Thermal Power Station 1 in the NLC complex to register their protest, on July 9. Photo: T. Singaravelou

Chief Minister Jayalalithaa. Photo: R Senthil Kumar/PTI

The Centre’s decision to sell 5 per cent of its stake in the NLC faces stiff opposition, but the Tamil Nadu Chief Minister steps in and saves the day for the employees and the State.

THE strike by about 13,500 employees of the Neyveli Lignite Corporation (NLC) in Tamil Nadu in protest against the Centre’s decision to offload 5 per cent of its equity stake in the Central public sector undertaking stood out on several counts. First, the strike was not against the NLC management but against the Centre’s policy of disinvestment. Second, the workers went ahead with the strike plan on July 3 despite the Madras High Court restraining them from doing so. Third, four officers’ associations, which had agreed to take part, backed out when the High Court restrained the NLC labour unions from going on strike. Fourth, mining of lignite and generation of electricity were not affected too much because the 4,500-strong officer workforce stepped in. Several hundred contract workers also joined the officers. Fifth, all the political parties in Tamil Nadu opposed the Centre’s move, which, they said, amounted to dilution of the NLC’s public sector character. Sixth, the striking employees did not intimidate the officers and the contract workers. It was a peaceful 12-day strike, which ended on July 15.

In sum, the striking workers won and the State government brought credit to itself. For, the Central government accepted Chief Minister Jayalalithaa’s proposal to let the State’s public sector units buy the stake. The opposition Dravida Munnetra Kazhagam (DMK) in the State initially seemed to oppose the proposal, but DMK president M. Karunanidhi suggested to the Prime Minister on July 11 that the Centre consider the sale as “public purchase” and not as “institutional purchase”. He had earlier wanted the Securities and Exchange Board of India (SEBI), the market regulator, to treat it as “sale to the people”.

The PSUs that will buy the stake are the Tamil Nadu Industrial Development Corporation (TIDCO), the State Industries Promotion Corporation of Tamil Nadu (SIPCOT), the Tamil Nadu Industrial Investment Corporation (TIIC), the Power Finance & Infrastructure Development Corporation, and the Tamil Nadu Urban Finance & Infrastructure Development Corporation.

The modalities for the sale were completed on July 15, and hundreds of workers reported for work the same evening; the “no work, no pay” rule had taken its toll on them.

The NLC, situated in Neyveli in Cuddalore district, is a “Navratna” company that is involved in mining (lignite) and in power generation. It produces about 28.5 million tonnes of lignite, a dark tan coloured fossil fuel, from three opencast mines and uses this lignite to generate 2,490 MW from three thermal power stations there.

The NLC has an 18,000-strong permanent workforce, 4,500 of which are executives, who have organised themselves into four associations. The rest are workers, clerks, attenders and so on, and they have two recognised trade unions: the Labour Progressive Front (LPF, NLC unit) affiliated to the DMK and the Anna Workers’ and Staff Union of the AIADMK. The company also has about 11,000 contract workers. The All India Trade Union Congress (AITUC), affiliated to the Communist Party of India (CPI), represents their interests.

The Centre holds 93.56 per cent equity stake in the NLC. The remaining 6.44 per cent is with the public, including the Life Insurance Corporation (LIC), banks, financial institutions and others.



Failed first attempt

The NLC had been on the disinvestment radar of even the first Congress-led United Progressive Alliance (UPA) government. The UPA government, on June 22, 2006, decided to disinvest 10 per cent of its shares in the NLC when Karunanidhi was the Chief Minister of the State. Political parties in the State opposed the move and NLC employees went on strike from July 4. The DMK, which was a partner in the UPA government, reportedly threatened to withdraw its Ministers from the Union Cabinet. The Centre gave up its move on July 7.

The UPA government in its second term, with P. Chidambaram as Finance Minister, renewed its attempt in 2013. On June 21, 2013, the Cabinet Committee on Economic Affairs (CCEA) approved disinvestment of 5 per cent of the Centre’s stake through the ‘offer for sale’ route to “comply” with SEBI regulations. The Department of Disinvestment (DoD) had moved the CCEA seeking to offload more than 7.8 crore shares, or 5 per cent of the Centre’s holding, in the NLC to the public. The Centre sought the State government’s help to convince the labour unions to accept the proposal.

Chief Minister Jayalalithaa wrote to the Prime Minister on May 23 alleging that the proposal was meant to “meet an artificially placed regulatory requirement under the recently amended Securities Contracts (Regulation) Rules, 1957”. She said her government was “strongly opposed to privatising any portion” of the NLC and added that the public sector character of the NLC “should be maintained without any dilution”. Any proposal to disinvest even a small portion of the company’s shareholding would lead to labour unrest and aggravate the electricity shortage in Tamil Nadu, she said. Prime Minister Manmohan Singh, in his reply on June 8, indicated that it was not possible to reconsider the disinvestment.

The Centre’s decision to disinvest came on June 21. This angered the employees, who were also hurt by Chidambaram’s assertion that the offloading of the shares was “an absolute necessity”. The employees and contract workers organised various forms of protest from June 27; they wore badges, held gate meetings, demonstrated near the Q Bridge, and went on a fast. After talks failed, the two recognised trade unions and the unrecognised unions decided to go on strike from July 3.

The NLC General Manager filed a writ appeal in the Madras High Court. The First Bench, comprising Acting Chief Justice R.K. Agrawal and Justice T. Raja, passed an interim order restraining 17 unions or associations from going on an indefinite strike. Nevertheless, the employees stuck to their decision, but the officers’ associations withdrew.

S. Rajavanniyan, general secretary, LPF (NLC unit), said he was sure that the disinvestment would gradually lead to the privatisation of the profit-making Central PSU. Of the NLC shares, 6.46 per cent were held by the LIC, mutual funds, and NLC employees. If the Centre was allowed to offload another 5 per cent of the shares to the public, the disinvestment would go up and “step by step” reach 49 per cent, he said. “When that happens, there will be no new recruitment in the NLC. Workers will not receive any wage hike, bonus, incentive, and so on. Residents of 60 villages gave their land to establish the NLC as a PSU and it is doing well. It has been earning profits for the past 35 years. So why should the Centre divest its shares?” Rajavanniyan asked.

“The NLC sells electricity at between Rs.2.63 and Rs.3.37 a unit, depending on the station from which it is generated. A nearby private producer, ST-CMS, which buys lignite from the NLC, sells electricity at a much higher rate to the Tamil Nadu Generation and Distribution Corporation (TANGEDCO),” the LPF leader said. He feared that if the NLC were to be privatised in stages, it would sell electricity to the southern States at higher rates than at present. “That is why when the Centre tried to offload 10 per cent of its shares to the public in 2002 and 2006, we fought unitedly against it and the Centre backed down. Our aim is that not even 1 per cent of the shares in the NLC should be sold to anybody,” Rajavanniyan said. He alleged that the officers’ associations had backed out under pressure from the NLC management. Ninety-five per cent of the contract workers supported the strike, he said.

Rama Udayakumar, secretary, Anna Workers’ and Staff Union, argued that the Centre’s decision amounted to privatisation of the profit-making NLC. He reckoned that the market value of the 5 per cent shares would be several thousand crore rupees and the people at large would not have “the purchasing power” to buy that stock. “Under the garb of the public, speculators in the share market and wealthy businessmen would corner these shares,” Udayakumar added.

The Communist Party of India (Marxist) held demonstrations all over the State against the Centre’s decision to disinvest in the NLC and to increase the price of natural gas. The CPI(M) Polit Bureau contended that the NLC workers’ demand was in the national interest and that the policy of disinvestment in PSUs should be stopped. G. Ramakrishnan, State secretary of the CPI(M), ridiculed the Centre’s claim that it was complying with SEBI’s stipulation. “SEBI’s stipulations are not biblical commandments,” he said. The NLC was able to sell electricity to State utilities at around Rs.3 a unit because it was a PSU, but private power producers were selling it between Rs.6 and Rs.7 a unit, Ramakrishnan said.

CPI(M) legislator K. Balakrishnan alleged that NLC shares were grossly undervalued. “If the worth of 5 per cent shares is Rs.466 crore, the net worth of the NLC would be only Rs.9,320 crore. When this profit-making Navratna company is investing thousands of crores of rupees in new projects, the projected sale proceeds do not reflect the company’s true value,” he said.

B. Surendar Mohan, Chairman-cum-Managing Director, NLC, appealed to the workers on July 11 to end their strike. “There are loyal workers who are supporting us, but such a thing cannot be sustained for a long time,” he told Frontline. The silver lining was that the striking workers did not stop others from reporting to work. “That is why I appeal to all to work together,” he said.



CM’s letters

Meanwhile, Jayalalithaa wrote a series of letters to the Prime Minister, signalling her opposition to the Centre’s decision to disinvest and dilute the NLC’s character as a PSU. In her June 22 letter, she told the Prime Minister that the CCEA’s approval of the decision “was yet another instance in which the Central government has ridden roughshod over the very legitimate and genuine concerns of the people of Tamil Nadu”. She alleged that the Centre seemed to have given preference to the immediate possibility of raising “just” Rs.466 crore by the sale of the shares over the aspirations of the people of Tamil Nadu to maintain intact the NLC’s public sector character.

“I wonder whether even the timing of the decision is well-advised given the recent fall in the share markets and whether the true value of the shares of a profitable Navratna public sector enterprise will be realised by the Government of India. The future should not judge the Central government as having sold the family jewels at throwaway prices,” she wrote.

“The NLC disinvestment issue should not be seen merely from the point of view of complying with the SEBI rules/guidelines or with sending out market signals. Rather the wider ramifications must be kept note of,” she added.

In her letter on June 25, she suggested that the Centre offer the stake to the Tamil Nadu government’s PSUs such as TIDCO, SIPCOT and the TIIC. She said these entities came within the definition of “qualified institutional buyers” and hence would be eligible to buy the shares under an institutional placement programme. She argued that such entities fell within the meaning of “public” as defined under Rule 2(d) of the Securities Contracts (Regulation) Rules, 1957. Offer of shares to them would ensure that the NLC would be compliant with Rule 19(2) and Rule 19A of the Securities Contracts (Regulation) Rules, she said.

In her letter on July 7, she reiterated the proposal she mooted in her June 25 letter and requested the Prime Minister “to direct the SEBI to quickly work out the modalities of such a transaction”. She suggested that while the Tamil Nadu PSUs were prepared to buy the entire 5 per cent of the equity, it was enough to offer for sale only 3.56 per cent in order to meet the regulatory requirement of 10 per cent public holding because 6.44 per cent was already with the public.



That the decks were being cleared to offload 5 per cent shares in the NLC to Tamil Nadu’s PSUs became apparent when the Secretary, Department of Disinvestment, wanted Tamil Nadu to send a nodal officer to discuss Jayalalithaa’s proposal. Manmohan Singh also replied to Jayalalithaa on July 12 that it was possible to implement her proposal. Tamil Nadu government officials, headed by K. Shanmugam, Principal Secretary (Finance), met officials of the DoD and the SEBI on July 10 and 15. The Centre accepted Jayalalithaa’s proposal and later heeded her other suggestion that it was enough for the Centre to disinvest 3.56 per cent.





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