The Comptroller and Auditor General of India on Friday criticised the previous National Democratic Alliance government for undervaluation of a number of public sector units, including Balco and VSNL, where equity was divested.
"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 divestment," CAG said in a report on divestment during 1999-2003.
"Audit noticed a general trend in the divestment of PSUs that majority of bidders, who had initially submitted Expression of Interest, withdrew during the process during due diligence limiting the competition," the report tabled in Parliament said.
It said as many as 48 out of the 70 parties interested in becoming strategic partners had withdrawn and only in two cases (IBP and IPCL) more than two financial bids were received indicating that the competitive tension generated in the process was not encouraging enough to have maximized the value of stake under divestment.
The CAG attributed the lack of adequate interest among the prospective investors to the failure of global advisors, who were unable to generate adequate competition at the bidding stage.
"The government also contributed to this situation by delaying crucial decisions, affecting the financial health of the PSUs," it said.
The report also said that the exercise of asset valuation did not appear to have been undertaken with due seriousness in as much as the valuers were generally not given enough time and core and non-core assets had not been segregated before valuation.
According to CAG, there were inconsistencies in computation of equity value of the companies that were divested.
The methodology followed for asset valuation did not appear to be beneficial as the valuation was done without adequately considering all properties.
In case of Modern Foods, certain core assets like leasehold land and plant and machinery and in case of Balco leasehold land housing the plant and township were not valued under the asset valuation methodology.
CAG also pointed out that the companies like Balco, VSNL, Paradeep Phosphates and IPCL did not have a clear title to all the real estate, land and buildings in their possession which would have made it impossible for the value of these assets to be accounted for, while fixing the reserve price.
The report also said that the government continued to change the goal posts even when the process of divestment was on.
"Crucial decisions having substantial financial implication were taken after inviting Expression of Interest from prospective bidders in case of VSNL, PPL and IPCL," it said.
CAG also pointed out that the delay in demerging 773.13 acres surplus land of VSNL has not been carried out till date though the company was sold way back in 2002.
Our stand vindicated by CAG: CPI-M
The Communist Party of India (Marxist) said its stand that profitable PSUs had been grossly undervalued before being divested by the erstwhile NDA regime had been vindicated by the latest CAG report and demanded a probe into it.
"We had maintained that PSUs like Balco had been grossly undervalued to provide benefit to the prospective buyers. Our position has been vindicated by the CAG," party leader Sitaram Yechury said.
Quoting the CAG report, he said even the amount of earnest money, which was to be deposited by the buyers, was reduced substantially.
"We demand a thorough inquiry into who was responsible for the loot of India's public assets during NDA rule and action against them," he said, adding that "we are happy that the UPA government has stopped following the same route of divestment of PSUs."
Referring to the management of foodgrain supply through the Public Distribution System, he said another CAG report has pointed out that the estimate of states about the quantum of PDS foodgrains was "32 per cent higher than that of the Centre. On that basis, the Centre has been allocating foodgrains to the states, depriving lakhs of poor people."
The CPI(M) leader said a rally of ration shop owners would be held in the next few days in which they would demand enhancement in foodgrain supplies. They have been complaining about "a severe short supply" of grains for PDS shops.
Yechury demanded that all essential commodities be supplied through the ration shops to ensure that they reach the poor and needy sections.
