Government Plans to Shut Down Three Low Profitable Companies –MMTC & STC & PEC

Government has decided to de notify three Central Public Sector Units i.e. Metals and Minerals Trading Corporation (MMTC), State Trading Corporation (STC) and The Project and Equipment Corporation of India Ltd (PEC) as nominated agencies for imports and exports of goods like high grade iron ore and precious metals. Now these companies will no longer remain canalizing agencies for import and export of goods for the government. Before we get into the topic let us first understand What Does MMTC, STC AND PEC do?? and Why Government has decided to shut down the Companies?? So let us start with our first question

What Business is MMTC, STC, and PEC in to?

Metals and Minerals Trading Corporation (MMTC)

MMTC is major global player in the minerals trade and is the single largest exporter of minerals from India. MMTC was incorporated in the year 1963.
MMTC was established with the objective to regulate international trade of minerals and metals. MMTC is major player in the minerals trade and is the single largest exporter of minerals from India. The company provides logistic support from procurement, quality to guaranteed timely deliveries of minerals from different ports.
These activities are carried out through a wide network of regional and port offices in India as well as international Subsidiary. MMTC is also one of leading player in fertilizers and raw material supplier in India. Apart from these business MMTC is largest importer of gold and silver in Indian Sub-continent and supplies gold on loan on outright basis to exporters, jewellery manufacturers in India.
Also MMTC is the largest seller of imported nonferrous metals like copper, aluminum, zinc, lead, tin and nicket. It also sells imported minor metals like magnesium, antimony, silicon and mercury, as also industrial raw materials like asbestos and also steel and its products.
MMTC is amongst the leading Indian exporters and importers of agro products. The company’s bulk exports include commodities such as rice, wheat, wheat flour, soyameal, pulses, sugar, processed foods and plantation products like tea, coffee, jute, etc. It also undertakes extensive operations in oilseed extraction, from the procurement of seeds to the production of de–oiled cakes for export, as well as the production of edible oil for domestic consumption and imports edible oils.
It is the largest non–oil importer in India. It’s diverse trade activities encompass third country trade, joint ventures, link deals – all modern day tools of international trading. It has vast international trade network, which includes a wholly owned international subsidiary in Singapore MMTC Transnational Pte. (MTPL), spanning almost all countries in Asia, Europe, Africa, Oceania and Americas.

State Trading Corporation (STC)

STC was set up on 18^th May 1956 with the objective to undertake trade with East European countries and to supplement the efforts of private trade and industry in developing exports from the country.
It arranged for imports of essential items of mass consumption such as wheat, pulses, sugar, edible oils and contributed significantly in developing exports of a large number of items from India.
STC has a paid up equity capital of ₹60 crore. The total manpower on the Corporation as on 01.11.2022 was 153.STC has not been undertaking any business activity at present and is continuing as a non-operative company. STCL Ltd., a subsidiary of STC, is in the process of winding up and has stopped all its business activities since 2014-15 onwards.

The Project and Equipment Corporation of India Ltd (PEC)

PEC Ltd (formerly – The Project and Equipment Corporation of India Ltd.) was incorporated as subsidiary of STC on 21.04.1971 to take over the canalized business of State Trading Corporation of India Ltd railway equipment division, to diversify into turn-key projects outside India and to assist in promotion of exports of Indian engineering equipment.
Thereafter, from 27th March, 1991, PEC Ltd. became an independent company directly owned by the Government of India. PEC Limited also has a subsidiary Tea Trading Corporation Limited which is under liquidation. PEC Limited is incurring losses since Financial Year 2014-15 and has stopped all business activities since September, 2019.

Government Of India Share Holding in MMTC, STC and PEC

The Government of India holds 90 % stake in MMTC and STC, whereas the Details of PEC shareholding pattern is not available publicly.

Why Government Decided to Shut Down The Public Sector Units??

Under the current foreign trade policy (2015-20), there are seven nominated agencies for the import of precious metals which includes four from the department of commerce — MMTC, STC, PEC Ltd, and STCL Ltd. The Union Cabinet had approved the closure of STCIL, a subsidiary of STC, in 2013 and its winding up petition is pending in the Karnataka High Court.
The Analyst believe that the core purpose of the Public Sector Units with which it was established has become obsolete. Also the analysts believe that government should not get involved in such type of business. The ministry said their utility was examined well and the ministry firmly believes that there is no need for any canalizing agency in the department of commerce. Following the de-notification, these companies will no longer remain canalizing agencies for the import and export of goods for the government.

MMTC and STC Revenue Earned

STC reported zero revenue in FY22 and FY23 Due to suspended business activities since November 2020. However in FY23 it has reported a net profit of Rs 32.89 crore which is a turnaround report as compared to net loss of Rs 93.97 crore in FY 2022. This was due to increased rental income and reduced operating costs.
STC had a negative net worth of Rs 1028.67 crore and accumulated losses of Rs 1156.04 crore. According to annual reports of FY23 STC is working with lender banks to finalize One Time Settlement (OTS) to settle their outstanding dues. MMTC reported a revenue of Rs 3,528 crore in FY23, down 70 percent from a year ago. Net profit for the year stood at Rs 1,072 crore, compared to a loss of Rs 270 crore a year ago.

The Winding Up Process

There is no timeline set for the three company’s closure. Union Commerce Minister Piyush Goyal is slated to lead a high-level meeting on October 23 to explore the closure of three state-run entities, MMTC, STC and PEC. The closure process is closely being observed by NITI Aayog.
The Securities and Exchange Board of India (SEBI) had cancelled the licence of MMTC Ltd. in August as a stock broker for its involvement in illegal ‘paired contracts’ in a case related to National Spot Exchange Ltd. (NSEL). MMTC reportedly traded in “paired contracts”, which did not have regulatory approval.
According to NCLT standards, STC and MMTC may need to be removed from NCLT through an agreement with their lenders. Other possibilities, such as demerger and selective asset sales, may be more complicated, but the government hasn’t ruled them out until the final processes are determined.