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Home > Business > Columnists > Sucheta Dalal

Contradictions in the divestment policy

February 08, 2003

When the Swadeshi Jagran Manch rants about divestment -- as it recently did -- most forward looking Indians tend to switch off.

We are living in a globalised world and most of us are worried stiff about powerful interest groups steadily pushing India towards obscurantist and fundamentalist beliefs and regressive economic policies.

India needs fresh thinking and quick decision-making to get out of the stifling bind of its galloping population and deadly poverty.

Everybody who agrees with this notion supports the programme to divest public sector undertakings -- especially because Arun Shourie, who is easily the best Union Minister in the Bharatiya Janata Party-led government, heads the ministry.

Yet, the divestment programme is highly controversial and not merely because of ministers and bureaucrats who are guided by their vested interest in preserving PSU fiefs.

There are niggling doubts and contradictions that have been pointed out by several knowledgeable people. Legal luminary and Rajya Sabha Member, Fali Nariman had pointed out that government cannot divest its stake in the two public sector oil companies -- Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd, without the approval of Parliament to the process of nationalisation.

Former divestment commission chairman G V Ramakrishna, in a recent article (in The Financial Express) explained why the government has no option but to get Parliament's nod on the sale of oil companies whose assets were nationalised and vested in a government undertaking.

But the divestment ministry obtained an opinion from the Attorney General Soli Sorabjee, which apparently says that it can avoid Parliament.

The matter has landed in court following a petition filed by petroleum dealers.

What is more worrying is that the recent Cabinet clearance, in fact, strengthens the oil minister's control over both oil companies.

In the case of HPCL, all crucial decisions with regard to change in equity structure, business plans and Articles of Association have to be specifically cleared by government.

The BPCL divestment will be through an IPO (initial public offering), but this will only give unbridled powers to the petroleum minister.

After the government dilutes its holding, BPCL will no longer be subject to parliamentary oversight, or the Comptroller and Auditor General and Central Vigilance Commission -- it will be answerable only to the minister and one can guess the consequences.

Even at the policy level, serious contradictions have perplexed the divestment ministry's well wishers.

For instance:

Contrary to the recommendation of the divestment commission headed by G V Ramakrishna, Reliance Industries was allowed to bid for Indian Petrochemical Corporation Ltd and to create a monopoly. Yet, the Oil and Natural Gas Commission has been barred from bidding for HPCL on the grounds of future monopoly.

Yet, the same ONGC was allowed to acquire the Birla stake in Mangalore Refineries (MRPL), which was established as a joint sector company.

This contradiction has been pointed out, both, by the swadeshi lobby and Mr Ramakrishna.

By keeping ONGC out of the bidding, the government has only laid the ground for low value bids that will cause the giant HPCL to be sold cheap to a private sector bidder.

Another argument against ONGC bidding for HPCL was that if one PSU acquires another, the divestment is a sham.

True. But why wasn't this an issue when Indian Oil Corporation was allowed to bid for IBP -- a crucial petroleum marketing company?

ONGC had repeatedly pleaded that getting into refining and distribution is a forward integration move, important for facing up to future competition.

Instead of listening to it, the government is all set to strip ONGC's reserves by demanding a special dividend of Rs 3,000 crore (Rs 30 billion), without giving it anything in return.

With private sector companies such as Reliance already entrenched into the entire petrochemical chain from exploration, refining and marketing to manufacturing all major downstream products and even textiles, preventing ONGC from quick forward integration only weakens the Corporation.

The sale of the Centaur hotel (airport) and Videsh Sanchar Nigam Ltd (VSNL) exposed serious deficiencies the shareholders agreement, but these are being defended by the divestment ministry.

The Tatas, who acquired VSNL, were on the verge of diverting a massive Rs 1,300 crore (Rs 13 billion) of reserves to another a loss making company called Tata Teleservices even before the ink on their acquisition documents had dried.

It blew up into a major controversy.

Similarly, the company, which bought Centaur Hotel, sold it in less than two months for a cool profit of Rs 32 crore (Rs 320 million) to the Sahara India group.

One can surmise that the only reason that Sahara would pay such a premium is to bypass the condition in the original sale to run the property as a hotel.

It is rumoured that the airline group, wants to convert a part of the sprawling hotel property into its corporate headquarters.

Sanjay Nirupam, a Shiv Sena Member of Parliament, has alleged corruption in the deal.

Since PSU hotels were sold as running companies rather than on basis of the break-up value of their real estate they fetched a lower price.

The government could have realised a higher value by selling their assets rather than allow private parties to profit so handsomely from the divestment process.

The irony is that government insists that there is nothing wrong in its shareholders' agreement and future hotel sales will follow the same path.

The strangest inconsistency is the divestment ministry's insistence that companies that have defaulted on their financial obligation to government-owned banks and institutions would be allowed to bid for PSUs.

The government has failed to reply to the simple question, that if these companies had the money to bid for a PSU, why are they defaulting on repayment of loans and interest in their existing companies?

Many of these contradictions have remained unresolved because the entire divestment process has turned into a political battleground where entrenched views have replaced logic and national interest.

Far fetched allegations of corruption in the sale of Centaur hotel vitiated the environment and probably caused Divestment Minister Arun Shourie to dig in his heels and refuse to distinguish between genuine concern and rabble rousing.

The tragedy is that if the swadeshi lobby itself were less politically motivated and genuine in pursuing national interest, it could have played a valuable role in quelling opposition and pushing for a sensible divestment programme.

Sucheta Dalal

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