Divestment in profitable Shipping Corporation of India ‘irrational’ says parliamentary committee

The divestment of the Shipping Corporation of India (SCI), the country’s only state-owned merchant shipping company, has drawn criticism from a parliamentary body, which called the move to divest the profitable and core sector PSUs “irrational”.

In its report submitted to Parliament last week, the Parliamentary Standing Committee on Transport, Tourism and Culture, headed by YSR Congress Party leader V. Vijayasai Reddy, said: “Divestments in unprofitable PSUs (Public Sector Companies) are justified. But well-functioning power supplies, especially in core sectors, should not be sacrificed for short-term financial gains.”

The Standing Committee’s report made the comments when considering the Department for Ports, Shipping and Waterways’ grant claims for the 2023-24 financial year.

The panel recommended the government to reconsider its policy of divesting viable power supplies, particularly in core sectors, and went on to say that a strategic asset like SCI is vital not only for its blue economy policy but also for maritime safety.

The union cabinet approved SCI’s strategic divestment in November 2020. A month later, the Department of Investment and Public Asset Management (DIPAM) requested an expression of interest (EoI) to divest its entire 63.75 percent stake in SCI.

SCI has achieved a net profit of Rs 468 crore for the nine months of the current financial year. It owns 59 ships of 5.311 million DWT (DWT) and 2.94 million GT (Gross Tonnage) and operates around 26 percent of India’s tonnage.

“Balance to protect national interests”

While acknowledging that divestments allow the government to control budget deficits, the Standing Committee said the balance should be struck to protect national strategic interests.

“In addition to being India’s largest merchant cargo company, SCI has diversified into the Indian offshore marine business and has acquired expertise in manning and operating highly specialized vessels,” the committee noted in its report.

During the review of grant applications, the Department of Shipping informed the parliamentary body that several EoIs had been received and qualified interested bidders (QIBs) had been shortlisted by the DIPAM 2021 committee.

“The bidders had insisted on a spin-off of non-core assets prior to the divestment. Three hearings on the split have concluded,” the ministry told the parliamentary body.

The SCI Board of Directors has set March 31, 2023 as the effective date for the demerger as part of the divestiture process.

For context, the split is the division of a larger company into two or more organizations.

The ministry further said that according to the process followed in the strategic divestment, the floor price for the transaction will be determined through an evaluation exercise after receiving financial offers from QIBs. After setting a minimum price, the financial offers will be opened, the ministry said in its submission.

Regarding whether the government considered another option before the divestment, the ministry has reiterated to the parliamentary body that the decision was made based on NITI Aayog’s recommendation.

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