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Power ministry against PSU share buyback plan to trim deficit

05 Dec 2011 Evaluate

The government’s plan of meeting disinvestment target for the current financial year has run into fresh problem as the ministry of power has indicated that all six companies under its administration will not be able to participate in the process. The public sector enterprises under the administrative control of the power ministry are NTPC, Power Grid, NHPC, REC, PFC and NEEPCO.

In a oppose note to the North Block, the ministry of power has argued that all the state-run firms have big expansion plan to tackle the massive power shortage in the country and therefore, won’t be able to spare cash for share buyback.

A finance ministry official said, 'they (power ministry) have argued that they are targeting a capacity addition of almost 100,000 MW during the 12th Five Year Plan (2012-17)'. By adding further he said, 'this would need huge investments, and PSUs under them have already committed funds for various projects'.

As per the estimates, the combined cash surplus with all these state-run firms is around Rs 50,000 crore more than 2011-12 disinvestment target of Rs 40,000 crore that the government is struggling to meet, which have just raised Rs 1,145 crore in the 2011-12.

Till now, the department of public enterprises (DPE), a nodal agency for 246 state-run firms, has supported the cabinet note proposed by the finance ministry on share buyback.  However, the DPE has also cautioned that firms should not be forced to buy back shares, recommending that the option should be left to the respective boards. Further, DPE also suggested to follow all the guidelines of the capital market watchdog Securities and Exchange Board of India.

The ministry of finance has moved a cabinet proposal to give executive sanction to listed companies having surplus cash for buying back their shares. The government is also exploring various options, including cross-holding, share buyback, auction and special dividend to raise disinvestment proceeds. Recently, finance minister Pranab Mukherjee has said that the government will stick to its disinvestment target of Rs 40,000 crore in this fiscal.

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