Chennai: The Tamil Nadu government said companies owned by the state should be allowed to buy the 5% stake in Neyveli Lignite Corp. (NLC) that is being sold by the central government to stave off labour strife with unions threatening to go on strike over the issue.

The central government is selling the stake to meet the regulatory norm that the public holding in state-owned enterprises must be at least 10% and to raise resources.

“This is a very sensitive issue and trade unions have announced they will go on an indefinite strike from 3 July. If the strike continues it will lead to shutting down of power plants at Neyveli," Tamil Nadu chief minister J. Jayalalithaa said in a letter to Prime Minister Manmohan Singh.

She pointed out that the state was already reeling under a power deficit and a strike at NLC would hurt its economy and people. In an earlier letter to the prime minister, dated 24 May, the chief minister had asked the prime minister not to divest the 5% stake. That was turned down by the central government.

The Cabinet Committee on Economic Affairs cleared the 5% stake sale in NLC on Friday. The government currently owns a 93.5% stake and a 5% divestment will raise about 466 crore.

Such a situation requires an “unconventional and pragmatic" solution, the chief minister said.

“Therefore, I propose that the 5% government of India’s shareholding in NLC be offered to one or more (of) Tamil Nadu’s state public sector undertakings, such as the Tamil Nadu Industrial Development Corp. (Tidco), State Industries Promotion Corp. of Tamil Nadu (Sipcot) and Tamil Nadu Industrial Investment Corp (TIIC). Such entities fall within the meaning of ‘public’ as defined under Rule 2(d) of the Securities Contracts (Regulation) Rules, 1957," said Jayalalithaa.

The offer of shares to them will ensure that NLC will be compliant with the rules, she said.

“The mechanism proposed by me can be facilitated by the Securities Exchange Board of India (Sebi)," she said.

“The above-mentioned Tamil Nadu’s public sector undertakings come within the definition of ‘Qualified Institutional Buyers’ (QIBs) and hence would be eligible to purchase the shares of Neyveli Lignite Corporation under an institutional placement programme," she said. “Sebi may be asked to work out a special arrangement for such a placement of shares of Neyveli Lignite Corp. with Tamil Nadu state undertaking at the approved rate."