NEW DELHI : The Comptroller and Auditor General (CAG) on Friday pulled up the former NDA regime at the Centre for having undervalued a number of public sector undertakings (PSUs) during the process of equity disinvestment. The list includes Balco and VSNL.

The report on disinvestment during 1999-2003 tabled in Parliament said: "Audit examination reveals instances of far too conservative assumptions made by the global advisors in 7 out of 9 PSUs...The assumptions had the potential of adversely impacting the business valuation, based on which the reserve price was fixed for disinvestment.

"Audit noticed a general trend in the disinvestment of PSUs that majority of bidders, who had initially submitted Expression of Interest, withdrew during the process ... limiting the competition."

Withdrawal

Probing further, it said that during the bidding stage, a whopping 48 out of the 70 parties interested in becoming "strategic partners" withdrew, while only in two cases of disinvestment — that of IBP and IPCL — more than two financial bids were received. This indicated that the competitive tension generated in the process was not encouraging enough to have maximised the value of stake under disinvestment.

Ascribing the lack of adequate interest among prospective investors to the failure of global advisers who failed in generating adequate competition at the bidding stage, the CAG said: "The Government also contributed to this situation by delaying crucial decisions, affecting the financial health of the PSUs."

To ensure that such slippages do not recur, the CAG advised the Government to fix accountability of all those involved in the process, ensure coordination among various arms of the Government and operationalise the National Investment Fund (NIF) so that the end-use of the funds could be monitored.

Not segregated

The report noted that the asset valuation exercise did not seem to have been undertaken seriously. While valuers were generally not given enough time to diligently complete the task assigned to them, "core" and "non-core" assets also were not segregated before valuation. Also, there were inconsistencies in computation of the equity value of the PSUs disinvested.

The CAG felt that the methodology of asset valuation was not beneficial as the valuation was done without adequately considering all properties. For instance, certain core assets such as leasehold land and plant and machinery in the case of Modern Foods and leasehold land housing the plant and township in the case of Balco were not valued.

PSUs such as Balco, VSNL, Paradeep Phosphates and IPCL did not have a clear title to all the real estate, land and buildings in their possession. This would have rendered it impossible for the value of these assets to be accounted for, while fixing the reserve price.

Noting that the Government continued to change the goalposts even when the disinvestment process was on, the report said: "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

It said the task of de-merging 773.13 acres of surplus land of VSNL had not been completed till date though the company was sold in 2002. "As a result, the land was still in the custody of the disinvested company in which the buyer had management control and could acquire majority shareholding," the report added.

© Copyright 2000 - 2009 The Hindu