In perhaps the first case of its kind, a public sector undertaking slotted for divestment has resisted the Centre's plans to take away a hefty dividend from its books.

M K Dalal, chairman and managing director of Engineers India Ltd (EIL), has asked the government to review the quantum of special dividend prior to its divestment in view of the company's need for cash to fund its expanding business.

The government, following discussions of the inter-ministerial group, had proposed a special dividend of Rs 309 crore (Rs 3.09 billion), almost half of EIL's Rs 656 crore (Rs 6.56 billion) reserves.

The Centre would get a major chunk of the amount because it has about a 90 per cent stake in the firm.

An EIL spokesman confirmed the move, saying: "The company is increasingly focusing on turnkey projects which require cash. Hence, EIL wants the entire special dividend plan dropped."

The Centre had taken hefty dividends before the divestment of Videsh Sanchar Nigam Ltd and Bharat Aluminium Co.

Dalal has written to the ministry of petroleum and natural gas, saying that EIL needs the funds to meet financial obligations.

"We would request you to once again review and finalise the quantum of special dividend so that the company can discharge all financial liabilities," says the letter, a copy of which is available with Business Standard.

The EIL chairman said the company had received orders for two turnkey jobs valued at Rs 952.1 crore (Rs 9.521 billion) from Indian Oil Corporation.

It is also likely to bag another, worth about Rs 900 crore (Rs 9 billion). EIL is executing a Rs 821.19 crore (Rs 8.211 billion) contract for the Oil and Natural Gas Corporation.

The company needs substantial working capital for the execution of these contracts, and this will be financed by internal accruals and loans.

The company's reserves stood at Rs 656.25 crore (Rs 6.562 billion) on March 31, 2002, on an equity base of Rs 56.15 crore (Rs 561.5 million).

The government is planning to bring down its stake to 26 per cent through divestment, of which 10 per cent has been earmarked for employees.

It has already received expressions of interest from the Larsen & Toubro-Gas Authority of India combine and the ONGC.

It is planning to invite financial bids soon. Recently, Divestment Minister Arun Shourie said the privatisation of EIL would be completed in the next four months.

EIL provides engineering consultancy and technical services to ports and to companies in a host of sectors, including refineries, power, petrochemicals, fertilisers and metallurgy.

It is now diversifying into building highways and bridges, airports and mass rapid-transport systems.