Is disinvestment a boon or a bane for Bengaluru’s iconic BEML?

The employees say that the government is going to be a big loser by selling its stakes in BEML.
Is disinvestment a boon or a bane for Bengaluru’s iconic BEML?
Is disinvestment a boon or a bane for Bengaluru’s iconic BEML?

In Bengaluru, the company is called ‘bemel’. Formerly known as Bharat Earth Movers Limited, Bengaluru’s iconic BEML, is one of the public sector undertakings that added to Bengaluru's reputation of being a pensioners’ paradise. Now, it stands on the threshold of privatisation / disinvestment, whichever way you see it. In any case, Bengaluru is no longer quite the laid back city of public sector employees, but bemel’s workers are not going down without a fight.

On November 21, a delegation of the PSU’s employees plan to meet Defence Minister Manohar Parikkar, to request the government to roll back the decision. 

“We will request the government to reconsider strategic sale of PSUs that have been set up using tax-payer's money,” says Domlur Srinivasa Reddy, president of the BEML Employees Association. 

He claimed that BJP leaders such as state president and former CM BS Yeddyurappa, union minister Ananth Kumar, BJP MPs Shobha Karandlaje and PC Mohan will also be present with them.

“Such decisions can be executed with Cabinet approvals. They don't need to be referred to Parliament. Looking at the pace at which these approvals are coming from the Cabinet, we feel we have very less time left to convince the government,” he said. 

The biggest argument in their arsenal, is that BEML is a profit-making company.

Towards the end of October, union Finance Minister Arun Jaitley said that the Cabinet had approved in principle, the recommendations of the NITI Ayog with regard to disinvestment and strategic sales in about 20 public sector units, including profit-making ones. In the 2004 general election, the Congress had promised that it would leave out profit-making companies from its disinvestment policy. 

In September, the NITI Ayog had listed over 44 PSUs, including ONGC, Oil India and Coal India for stake sale in 2016-17.

Although there were reports of BEML’s inclusion since the beginning of the year, October’s announcement appears to have given an impetus to the employees. In the second week of November, employees of the company’s Bengaluru and Palakkad units staged protests against the government’s proposed move. 

Currently, the government of India owns 54% of BEML’s equity. The rest is held by members of the public, financial institutions, foreign institutional investors, banks and employees. 

With disinvestment, the government’s ownership is likely to be reduced by 26% to meet the 2015-16 disinvestment target of about Rs 56,000 crore to be raised from both profit-making and loss-making companies.

“There is no rationale to this sale. BEML, which has manufactured the bogies for Namma Metro, is a profit making unit. In 2015 BEML made a profit of Rs 64 crores,” Srinivas claims. 

Started in Bengaluru in 1964, as Bharat Earth Movers Limited, BEML has manufacturing units in Bengaluru, Mysuru, Chikmaglur, and Kolar in Karnataka, and Palakkad in Kerala. Starting with a turnover of Rs 5 crore, today, its mainstays – defence, mining and rail and infrastructure – have a turnover of over Rs 3,000 crore. Although it has seen fluctuations, in March 2016, the company’s consolidated profits after tax stood at Rs 53 crore. 

Srinivas says BEML was a profit-making PSU even though it produces quality work at prices much lower than its international counterparts. Among BEML’s products are the metro coaches for Bengaluru’s Namma Metro, and more recently, the under-construction Kolkata metro.

BEML was awarded gold for its quality initiatives in the manufacture of metro cars in the International Convention of Quality Circle Competition (ICQCC-2016) which was held at Bangkok. 

“We charge Rs 9 crore per coach. But multi-national companies quote upto Rs 34 crore. We have cheap manpower. We are profit-making and technologically advanced. Giving us away to private sector would only be a loss for the government in future,” he said. 

Economist Prasenjit Bose agrees. “It doesn’t make economic sense for the government to let go of its future streams of dividends by selling off stakes in a profitable PSU, for a one-time income.”

Prasenjit said that the government would not have to resort to measures like disinvestment, which is a source of non-tax revenue, if it was successful in raising adequate tax revenues. On the need to raise resources to recapitalize public sector banks, he says: “Non-performing assets have accumulated in the balance sheets of public sector banks because of corporate debt defaults. While corporate debts are being written off on one side, the banks are approaching the government for capital infusion through the public exchequer. The government is resorting to disinvestment in order to raise resources. If you can catch the Vijay Mallyas and auction their assets, you wouldn’t need to sell PSU stakes to raise revenues.”

Srinivas says that government’s reduced ownership in the company would only serve the interests of multi-national companies. 

“46% of equity is already in the market. After 26% is sold off, the government will be left with only 28% stake. The government will have little say in the administration,” he said. 

Although the government’s disinvestment target for the year will comprise both minority stake sales and strategic sales and has set targets for both, it has not yet made the specifics public. Strategic sales means that specific assets – such as land, or subsidiary companies – are sold off to raise revenues. Srinivas fears that BEML’s assets are at stake. 

“There is no white paper. The cabinet has not said anything publicly. A private player might take away the land. BEML is so well-established that any private player that takes over the company will just swim in it with ease. We are very self-reliant and it is definitely a huge buy for anyone,” says Srinivas.

Prasenjit says that there is another hassle when it comes to strategic sale of PSUs. They are often controversial because the equity valuations are not market determined, and questions regarding under-pricing of public assets are bound to be raised.

In 2014, the CBI had registered a case against a former Disinvestment Secretary for the sale of the Indian Tourism Development Corporation’s Laxmi Vilas Palace hotel in Udaipur. But this time around, the government is said to undertake sales at market prices. 

Larger economic effects aside, BEML’s employees have a more immediate consideration. With seven years left before he retires, Srinivas fears that there could be a big question mark on his retirement life. “We might get a higher remuneration but our job security is at stake,” he said.

Across all units, BEML has over 2,000 permanent employees, including officers and 1,500 contract labourers, he says.

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