October 31

Govt may step up disinvestment drive with power PSUs mergers

New Delhi: The government is looking to execute at least two mergers among central public sector enterprises (CPSEs) in the power sector to step up the disinvestment process and meet its target.

It may kickstart the process with top power generation company NTPC taking over hydropower firm SJVN, a senior government official said.

“Some blue-chip CPSEs have shown interest in acquiring smaller CPSEs where they feel synergies exist,” the official told ET. “Also there are some CPSEs which can achieve efficiencies of scale if they combine their strengths.”

NTPC has already evinced interest in taking over SJVN, in which the government holds 63.79% stake, he said, adding that there could be a possible merger between power sector financing firms Power Finance Corporation (PFC) and REC Ltd. The government holds 65.64% in PFC and 57.99% in REC Ltd.

The government expects to raise around Rs 21,000 crore at existing market prices if these two deals work out in this financial year, the above quoted official said. The government has so far raised Rs 10,028 crore from disinvestment in the current fiscal against the target of Rs 80,000 crore.

The other firms where synergies are being explored include NHPC Ltd, North Eastern Electric Power Corporation Ltd, and Power Grid Corporation of India Ltd.

The administrative ministry and the respective CPSEs are doing their evaluation. We will also suggest some possibilities,” a finance ministry official told ET.

A senior executive with a state-run company, however, said NTPC may face some hurdles in its bid to acquire SJVN. “It may not be an easy route as the Himachal Pradesh government holds 26.85% in the firm," the person told ET.

The department of investment and public asset management (DIPAM) on Tuesday floated expression of interest for engagement of advisors for merger & acquisition in the power sector. DIPAM said it looks to engage one adviser in the process of (up to) two M&A in the energy sector.

Some experts don’t agree with the government’s move to push disinvestment through PSU mergers. “If the government is looking to meet its deficit targets by forcing these firms to buy its stake in other companies, in the long run it may impact the profitability of these firms, which should be a larger concern,” said MP Shorawala, a former independent director with Container Corporation of India.

Last year, ONGC bought the government's entire 51.11% stake in HPCL for Rs 36,915 crore, but HPCL is yet to recognise ONGC as its promoter and has only one member from ONGC on its board.

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