Privatization back on track in
India By Indrajit Basu
KOLKATA - Local and foreign institutional
investors (FIIs) who thought divestment of India's
state-owned units was dead and buried under the newly
elected Congress-led United Progressive Alliance (UPA)
government can take heart. The much-touted divestment
plan is very much alive and kicking on the government's
agenda.
Finance Minister P Chidambaram
said on Wednesday that he plans to raise more than US$33 billion in
the next five years from the sale of minority holdings
in profit-making government-owned enterprises. He also
announced setting up of a new body called the Empowered
Group of Ministers (EGM) to identify the public-sector units
(PSUs) that can be taken to the market, and to decide on
the pricing of the shares and the quantum of the stake
to be offloaded.
Succumbing to the pressure
of its leftist-party allies, who insist that profitable state
units remain under government control, the UPA
government, soon after it assumed power in May, had shunted
the previous government's "strategic sale" plans by which
it had planned to raise more than $22 billion a year for the
next five years. To appease the intensely
privatization-averse leftist allies, Chidambaram, while
assuming his new job, quipped that he wanted "to be an
investment minister, not a disinvestment minister". In a
loaded gesture, he also dismantled the previous
government's divestment panel, called the Cabinet
Committee on Disinvestment.
But encouraged by
its recent victory in state elections in the western
province of Maharashtra, and confronted with a funds
crunch that threatens to stall its ambitious expenditure
plans, the UPA is now crafting its own divestment plan
that actually brings the old process back on track, but
in a new mold. "This will be done without changing the
public sector character of the enterprises," Chadambaram
said.
The first set of enterprises to go
under the hammer will be the Mumbai and Delhi airports.
"We plan to complete the bidding process by end-February
or March," said Civil Aviation Minister Praful Patel,
"and we hope to raise more than $1 billion in the
process." Ten groups, including local industrial giant
Reliance and foreign entities such as Singapore's Changi Airport and
Germany's Fraport AG, have reportedly joined the
bidding.
Although the EGM has not announced its
official recommendation yet, a good idea of what it
could be can be formed from the draft strategy that
Chidambaram's ministry has already started circulating
in other ministries. The most notable feature of this
strategy is that unlike the previous government's
intention of relinquishing majority control, the UPA
government envisages retaining a minimum of 51% in all
profit-making PSUs. Strategic units in defense and the
railway would also be retained fully.
The draft
classifies PSUs into three broad categories based on
their financial performance: profit-making, loss-making
and potentially sick, and sick. The plan is that
profit-making units will be allowed to raise money from
the market, but will remain in the public sector - a
feature that the left parties insist on and hence is
unlikely to be disputed. "This way," says the draft,
"such PSUs would get more commercial and operational
autonomy. There will be higher efficiency and greater
transparency in their operations once their ownership is
broad-based by way of divestment."
For
loss-making and potentially sick PSUs, the government
will consider the options of inducting a private
partner. The partner may be offered a minority or a
majority stake depending on the "turnaround prospects"
of each company in that category. But if majority stake
is unloaded to the private partner, the government
promises to transfer management control as well. The
government is also open to the idea of long-term lease
of loss-making and potentially sick PSUs. The draft
policy has, however, recommended that chronically sick
units may be wound up after the payment of outstanding
dues through a prior sale of assets.
The
draft has identified 48 PSUs on which a study has to
be conducted. Of these, seven have been identified as
loss-making companies fit for closure, while divestment
is seen as the only option to revive another batch of 11
in the red. There are nine profitable companies that
won't be touched. About 17 units are under scrutiny for
options of revival "by inviting support from private
sector".
Officially, Chidambaram is tight-lipped
on the names of the units on his divestment list. But
going by the names that are under consideration by the
draft, future investors can look forward to some
lucrative opportunities. For instance, the draft has
identified unlisted blue chips such as Coal India, Bharat
Sanchar Nigam Ltd (the country's largest telecom service
provider), Air-India and Indian Airlines as "top on the
agenda". Companies, some of which were earlier
"strategic sale" candidates of the previous government,
such as Nalco, Hindustan Organic Chemicals, Shipping
Corporation of India, Engineers India Ltd, National
Fertilizers, and Rashtriya Chemicals and Fertilizers
have also been included in the list.
The draft
proposes absolute control of GAIL (Gas Authority of
India Ltd), Hindustan Petroleum, Bharat Petroleum, ONGC
(Oil and Natural Gas Corp), Indian Oil Corp, BHEL
(Bharat Heavy Electricals Limited), SAIL (Steel
Authority of India Ltd) and NTPC (National Thermal Power
Corp). But it says that while a minimum of 51%
equity will be retained in these companies, some shares
could be offloaded in the domestic and overseas markets
with the twin objective of widening the shareholder base
of these units and raising resources for government
expenditure. It adds that if any of these is offered
through public offerings, "such offerings would be
spaced out so as to ensure there is no crowding of
issues in the market".
Nevertheless, given
the left's opposition to divestment - and the importance
of its support to the survival of the UPA government -
the moot question is, will the UPA's divestments see
the light of the day? Experts are hoping they will. For
one, these divestments adhere to the guidelines of the
common minimum program document (a list of convergent
policy goals of the Congress party and the left). More
important, even the left agrees that the government
cannot afford to keep spending on sick units.
More than $500 million a year has been spent on
sick and loss-making public sector undertakings in the
past eight years, without any sign of revival. According
to a recent study conducted by the Finance Ministry,
losses on sick PSUs alone were in excess of $3 billion
in the same period. If the restructuring packages of
loss-making but non-sick PSUs are included, the figure
touches $4 billion.
There is no clarity in policy
to deal with the problem. Nobody knows who will play
the key role in dealing with sick PSUs - the department
of disinvestment, the Board for Industrial &
Financial Reconstruction or the newly set up Board
for Reconstruction of Public Sector Enterprises. To
chart a divestment course, Chidambaram evidently still
has a few miles to go.
Indrajit Basu
is a Kolkata-based equity-analyst-turned-journalist with
more than 12 years of experience in business/finance and
technology journalism. Besides writing for Asia Times
Online, he also writes for US-based publications, as
well as IT companies.
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