Cabinet approves sale of govt’s stake in REC to PFC

New Delhi: The government is likely to net around ₹ 14,000 crore in its disinvestment kitty with the Cabinet Committee on Economic Affairs (CCEA) on Thursday approving the sale of the government’s stake in state-run Rural Electrification Corp. Ltd (REC) to another state-run firm, Power Finance Corporation (PFC), along with management control.

The decision also signals the creation of a major lending institution for the Indian power sector and is expected to reduce competition, while leveraging synergies and achieving economies of scale, as REC and PFC are the biggest lenders in that space.

The “in principle” approval for the strategic sale of the government’s 52.63% of total paid up equity shareholding in REC will take it closer to its ₹ 80,000 crore target of disinvestments in this fiscal year and help it meet the fiscal deficit target of 3.3% of gross domestic product (GDP) in 2018-19. So far, the government has garnered only ₹ 32,737 crore, on account of the collapse of plans to privatize Air India.

The transaction will have to be approved by the Competition Commission of India, the Securities and Exchange Board of India, the Reserve Bank of India, lenders, the boards of the two public sector units and minority shareholders.

“The acquisition intends to achieve integration across the power chain, obtain better synergies, create economies of scale and have enhanced capability to support energy access and energy efficiency by improved capability to finance power sector. It may also allow for cheaper fundraising with increase in bargaining power for the combined entity,” the government said.

The government is also considering the sale of the Satluj Jal Vidhyut Nigam Ltd (SJVNL) to NTPC Ltd, a government official said on condition of anonymity.

This marque transaction comes at a time when power has emerged as one of the highly stressed sectors, with close to ₹ 1 trillion of loans having turned bad or been recast. Around 66 gigawatts (GW) of capacity is facing various degrees of financial stress. This includes 54.8GW of coal-based power (44 assets), 6.83GW of gas-based power (nine assets) and 4.57GW of hydropower (13 assets).

The cabinet also decided to increase the share of government contribution to National Pension Scheme accounts of government employees from 10% to 14%, the official said. However, the government did not make a formal announcement on this in view of ongoing state elections.

The cabinet also approved the agriculture export policy aimed at doubling agricultural exports to $60 billion by 2022 by removing export restrictions on organic and agro-processed products as well as through the diversification of products. Marine products and meat constitute 52% of agri-exports at present prices, said commerce minister Suresh Prabhu, emphasizing the need for diversification. “We will remove export restrictions on most agri-products, except on sensitive products like onion,” the minister said.

Prabhu said the government will merge existing schemes to invest up to ₹ 1,400 crore in agri-export clusters as part of the strategy.

The cabinet also approved a proposal for establishing a monitoring framework at the commerce ministry as the nodal body, with representation from various line ministries/departments and agencies and concerned state governments, to oversee the implementation of the agriculture export policy.

Frequent changes in the agri-export policy depending on the domestic price situation is considered to be a hindrance in boosting farm exports. The new policy is likely to stabilize India’s policy towards export of farm products.