The economic reforms programme of the United Progressive Alliance government was dealt a crippling blow on Thursday when the Dravida Munnetra Kazhagam (DMK) threatened to pull out of the government if any stake in the Tamil Nadu-based Neyveli Lignite Corporation [Get Quote] (NLC) was divested.

DMK's arm-twisting tactics put Prime Minister Manmohan Singh under tremendous pressure and he immediately decided to put all proposed divestment plans on to the back burner.

The common minimum programme of the UPA government talks about not divesting profit-making PSUs. However, after discussions with its allies and with a view to giving a boost to the economic reforms process, the Union Cabinet decided to sell 10 per cent of its stake in the NLC as a part of its divestment drive.

This led to considerable opposition from the PSU's employees. The DMK-supported trade union, Labour Progressive Front, is the largest trade union at the NLC and it felt betrayed. Also unhappy were the Pattali Makkal Katchi (PMK) and the Left parties and their trade unions.

But where was the DMK when the Union Cabinet took the decision on divesting stake in the Tamil Nadu-based NLC?

When asked this question, T K S Elangovan, organising secretary of the DMK, told rediff.com that two DMK ministers were out of the country at the time and one minister was attending an official function and was not a party to the decision.

The reason does not sound very convincing, considering that the DMK had earlier supported the NLC divestment plan.

In fact, in 2002, when the DMK was part of the BJP-led National Democratic Alliance at the Centre, the government had planned to divest its stake in the NLC but this was opposed by the employees who went on an 8-day strike. At that time, the AIADMK was the ruling party in Tamil Nadu.

Although the trade unions expressed their displeasure and threatened to agitate, the DMK, the party that is now ruling Tamil Nadu did not make much noise over the divestment issue.

"We are not like the Left. We are in the government, and when a decision (to divest NLC) was taken by the Cabinet, it was binding on us. We cannot escape the decision even though we were not present in the meeting. So, our leader suggested that the shares should be sold to the employees themselves so that they also become the owners of the company. We thought they will be happy," T K S Elangovan said on Friday.

The prime minister also agreed to the suggestion made by the DMK leader. But the employees were far from happy. I Nedumaran, the president of the NLC Graduate Engineers' Association, said that 19,000-odd employees of NLC will each have to shell out Rs 5 lakh (Rs 500,000) each to buy the shares, which is 'impossible.'

So, the disgruntled workers decided to go on a strike. Thus 11,000 workers, 5,000 engineers, 3,000 non-executive staff, 12,000 contract workers, and traders and shopkeepers of the mining town began an indefinite strike from the July 4. It affected the supply of power to Tamil Nadu, Kerala, Karnataka, Andhra Pradesh and Pondicherry. Many rural areas too were affected by power cuts following the strike.

Did the DMK feel snubbed by the trade union backed by the party?

"No, not at all. There was no directive by the party not to participate in the strike. So the strike did not come as a shock to us. The only thing was that we had suggested an idea which was unacceptable to them. So, we decided to change our stand," Elangovan explained.

The change in stand was actually the party's original stand, said Elangovan. "Our stand has always been that the profit-making PSUs should not be divested. But when the Cabinet decided to divest and since we are also a party in the government, we had to go by it."

On the morning of the day the strike started, Tamil Nadu Chief Minister M Karunanidhi wrote to the prime minister again asking him to shelve the proposal. However, there was no response from the prime minister.

It was then that M Karunanidhi issued a statement that if the central government could not resolve the issue, and since the decision taken by the government would be binding on the party, the DMK did not want to be a part of the government.

Elangovan stressed that at no point did the DMK threatened to withdraw support to the government as was reported in the media.

"The Cabinet decision was not in the interest of the labourers. That is why we just wanted to remain away from the government," Elangovan said. However, he said that the DMK would "continue to support the UPA government, like the Left parties do, from the outside."

M Karunanidhi wrote in his letter to the prime minister that "some disgruntled elements are trying to instigate violence. Any time that may turn out to be a grave law and order problem. The situation in the NLC is becoming serious day-by-day and the opposition is trying to exploit the situation. The continuation of the problem may result in the total break down in the supply of electricity, not only to Tamil Nadu but also to entire south India."

The statement by the party was conveyed to the prime minister by Union Telecom Minister Dayanidhi Maran and Environment Minister A Raja. Both of them met Manmohan and had discussions with him in the presence of some senior Cabinet ministers, including Finance Minister P Chidambaram. After the meeting, Manmohan Singh decided to withhold the entire process of divestment.

So, what will happen to all the divestment plans?

"It is just kept on hold, not abandoned. We will insist that the government divest only the loss-making PSUs. We have no objection to that. We are not against divestment per se; we are only against the divestment of the profit-making PSUs," Elangovan told rediff.com.

A bit of history: NLC, located in Neyveli -- around 197 km south of Chennai -- is the largest lignite mining and lignite-based power generating company in India.

The history of Neyveli Lignite Corporation dates back to 1828 when 'peat,' a low calorific fuel of the coal family, was found near Point Calimere and was reported to the then Madras government by the sub-collector of Thanjavur, one Mr. Nelson. During 1943-46, the Geological Survey of India started drilling operations near Neyveli, and the preliminary investigations indicated the existence of lignite to the extent of about 500 tonne.

In 1951, Neyveli Lignite project's affairs, hitherto managed by the state government, were passed on to the central government with full financial responsibility. In 1956, NLC was formed as a corporate body, a government-sponsored commercial concern.

Today, the Neyveli Lignite Corporation is one of the Navaratnas, a profit-making PSU, that earns the state Rs 1,000 crore (Rs 10 billion) every year, after expenses. It has mines and power stations and other facilities worth Rs 46,000 crore (Rs 460 billion). It employs 19,000 people and supplies southern Indian states 2,490 MW of power.

• The Divestment Development: Complete Coverage