Friday, March 11, 2016

Centre to shut shop for two more ailing PSUs

MAKING it crystal clear that ailing and unsustainable PSUs will be closed, Centre has announced it would close down loss-making PSUs Hindustan Cables, Asansol, and the Kota unit of Instrumentation Limited.
Hindustan Cables continues to be in operation despite becoming a sick company in November 2002. The Board for Industrial and Financial Reconstruction BIFR) is still...
examining the prospects of reviving the firm.
Way back in 2013-14, the PSU reported zero sales, while its total debt burden stood at huge Rs 5,159 crore. While the PSU has classified Rs 2,642 crore of debt as secured, the amount should be "reclassified into unsecured", according to a report of independent auditors, because all production units of the PSU have were closed or unmaintained for 10 years.
Hindustan Cables had already defaulted on repayment of dues to banks, financial institutions and debenture holders and bond holders of Rs 2,769 crore as of end-2013-14.
The ailing PSU had reported fixed assets worth Rs 28 crore in its balance sheets. But, as these have remained unused and unmaintained for around a decade, the auditors viewed these as "defunct and technically non-usable, which is tantamount to retirement from active life". Its auditors further noted that the PSU's moveable assets had become "redundant" and "unusable", the trade receivables were "unconfirmed" and inventories were largely in the "form of scrap", rendering the firm almost worthless.
In 2013-14, its only income source was from selling scrap and income from other sources through which it garnered a mere Rs 3 crore. With no sales, the company had provided only Rs 1.74 crore to the national exchequer by way of taxes and fees. This was largely on account of taxes on salaries and wages and other taxes paid by the company.
The drain on the exchequer due to rigid labour laws was best highlighted by the fact that despite zero sales, the PSU continued to employ 1,698 workers, paying them Rs 112 crore as remuneration and benefits.
It proposed to give VRS to the employees. The burden on the exchequer would be much higher, as the PSU had not made any provision with respect to wage and salary arrears arising out of the pay revision, in effect from 1997.
The Instrumentation Limited unit is also in acute financial stress. Its annual loss before tax rose from Rs 68 crore in 2013-14 to Rs 141 crore in 2014-15. The PSU’s net sales declined from Rs 183 crore in 2011-12 to Rs 159 crore in 2014-15 and its debt burden soared from Rs 174 crore to Rs 266 crore in the same period, complicating the debt service challenge.
The PSU’s employee cost had risen from Rs 68 crore in 2011-12 to Rs 76 crore in 2014-15, representing 29 per cent of its total expenditure. The company has 1,677 workers.

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