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September 16-30, 2006

Revelations of CAG audit on disinvestment of PSUs

  • Far too conservative assumptions made by the global advisers in seven out of nine PSUs... The assumptions had the potential of adversely impacting the business valuation, based on which the reserve price was fixed for disinvestment
  • Majority of bidders, who had initially submitted expression of interest, withdrew during due diligence limiting the competition. . . 48 out of the 70 parties interested in becoming strategic partners had withdrawn and only in two cases (IBP and IPCL) more than two financial bids were received indicating that the competitive tension generated in the process was not encouraging enough to have maximised the value of stake under disinvestment
  • The government also contributed to this situation by delaying crucial decisions, affecting the financial health of the PSUs
  • The exercise of asset valuation did not appear to have been undertaken with due seriousness in as much as the valuers were generally not given enough time and core and non-core assets had not been segregated before valuation
  • The methodology followed for asset valuation did not appear to be beneficial as the valuation was done without adequately considering all properties. In case of Modern Foods, certain core assets like leasehold land and plant and machinery and in case of Balco leasehold land housing the plant and township were not valued under the asset valuation methodology
  • Crucial decisions having substantial financial implication were taken after inviting expression of interest from prospective bidders in the case of VSNL, PPL and IPCL
  • Demerging 773.13 acres surplus land of VSNL has not been carried out till date though the company was sold way back in 2002
  • The government included a post- closing adjustment clause under which the strategic partners could claim compensation from the government for liabilities arising out of the information that was not disclosed earlier
  • In the case of Modern Foods, the buyer had claimed Rs 17.48 crore as compensation and the government has already paid Rs 12.64 crore to it. The claims of Balco, Hindustan Teleprinters and Paradeep Phosphates are still under consideration of the government.
 
 
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