Centre reckons on REC-PFC deal to meet Rs 800-billion divestment target

The Centre holds 65.6% in PFC, valued at Rs 169 billion according to Tuesday's closing price

The government is counting on a state-owned company buying its stake in another public sector firm to help it exceed the disinvestment target of Rs 800 billion for the year. 

This would be Rural Electrification Corp buying all or a substantial portion of the government’s stake in Power Finance Corp.

However, sources in the two companies and the Ministry of Power say doing such a deal does not make sense for either of the firms, and, even if it were tried, it may not be completed before the end of the financial year. 

There are doubts if the Department of Investment and Public Asset Management (DIPAM) will be able to show any proceeds from this deal before the end of 2018-19.

The Centre holds 65.6 per cent in PFC, valued at Rs 169 billion according to Tuesday’s closing price.

Power ministry officials have so far denied any fresh development in the acquisition of PFC shares by REC. Meanwhile, REC officials said if a stake purchase were to happen, the company would take over the complete government stake in PFC.

REC Chairman and Managing Director P V Ramesh told Business Standard, "There has been no official communication from DIPAM regarding the stake purchase." He didn't dwell further on this. 

Sources in both companies conceded there had been informal consultations but that had not led to a concrete deal. Officials said with less than five months left for the fiscal year to end, there were doubts if a deal could be decided upon and completed in time.

Sources said the matter was with Cabinet Secretary P K Sinha, and might need intervention from the top.

PFC is the power sector's leading financier battling NPA threats from power assets of close to 14,000 Mw. 

REC, on the other hand, has been at the helm of the government's key energy access projects, the recent being the ambitious 

SAUBHAGYA project for 100 per cent household electrification.

As reported earlier, after the highs of the last fiscal year, the disinvestment target for 2018-19 is likely to fall short of the Rs 800 billion budgeted estimate. Given the market conditions, the best case scenario could be a shortfall of Rs 100-150 billion, excluding the proposed REC-PFC deal.

This compares unfavourably with 2017-18, when against a budgeted target of Rs 725 billion, DIPAM raked in a record Rs 1 trillion. A big portion of that was ONGC’s blockbuster acquisition of Hindustan Petroleum, which garnered Rs 396 billion, and took DIPAM to a record disinvestment realisation. In REC-PFC, the Centre is hoping for a similar situation.

Any shortfall in disinvestment does not bode well for the Centre’s fiscal maths. In September, Finance Minister Arun Jaitley had said the government would meet its fiscal deficit target without cutting capital expenditure. He had said the Centre would collect direct taxes in excess of the budgeted targets. And the disinvestment target will possibly be exceeded.

It is imperative for the Centre to meet the fiscal deficit target of 3.3 per cent of GDP in the face of a possible central goods and service tax shortfall of above Rs 1 trillion, and additional spending burden of Rs 460 billion.