The Hindu : Chinks in disinvestment

Online edition of India's National Newspaper
Wednesday, Oct 23, 2002

Opinion

Opinion - Editorials

Chinks in disinvestment

IN ANY DISCUSSION on the current state of the public sector disinvestment programme, there is a near unanimity that the postponement of the Cabinet decision on the privatisation package of the two integrated oil companies has virtually nullified all the impressive gains achieved recently. The Government's lack of political will to override the concerted ministerial opposition has been in evidence and to a very large extent the public sector sale programme has suffered on that score. Previously settled privatisation agenda concerning a few other companies are being reopened. Although the process of disinvestment can never be insulated from political manoeuvring, there is more evidence of it now after the dithering seen in the hydrocarbon sector. However, for all its significance, the Government's vacillation over the two oil companies is not the only or even the most important cause of concern to those in charge. To put it differently, if the policy requires a mid-course correction or at least a fine-tuning, it should not focus exclusively on the relatively technical issues of methodology of sale or the country's strategic interests which the Government ownership in certain sectors ostensibly protects.

That is because certain recent unconnected developments can dent the image of the process itself and thereby strengthen the hands of those opposed to the privatisation process. Ironically, those have been at the post-divestment stage, where the Government has already handed over the management control to the strategic partner and cannot be logically expected to influence the decision-making, except in a very broad sense. However, a legalistic interpretation of the rights and responsibilities of the vendor (the Government) and the buyer ought to be subordinated to the currently pressing issue of making an inherently controversial policy of divestment more appealing to a wider section of the stakeholders. That strongly implies that the Government ought not to stand aloof even while the new managements of the recently privatised companies take controversial decisions.

The resale of the Centaur Hotel by its new owner, Batra Hospitality Services, to the Sahara group has all the ingredients of a major controversy, although, as the Cabinet Minister, Arun Shourie, maintains, there was nothing in the shareholders agreement (an essential legal documentation) that could have stopped the transaction. Yet, the following points to a lacuna in a process: that the successful bidder could reap a windfall of around Rs. 32 crores (an amazing 35 per cent) in less than four months says it all. Logically speaking, a major part of such gain ought to have accrued to the exchequer if the bidding process had been more effective. On the other side, motives can be attributed to the Sahara group. The payment of a stiff premium for a property can be explained. After all, it fits into its plans for being a major player in civil aviation. Inexplicable, however, has been the group's original decision to stay away from the bidding process. The Government ought to clarify as to whether the group was trying to sidestep any covenants that the disinvestment policy might have prescribed. The issues here are more complex and do not concern just the implications of a property transfer but of upholding some of the stated goals of the programme. There is, for instance, a commitment that the new owners will be capable of boosting the entity's valuation by persisting with its core business.

In several other ways too, the Government ought to recognise the pitfalls at the post-disinvestment stage. The controversy that accompanied the newly privatised VSNL's decision to invest substantial sums in a Tata group company is only now abating but has left a bitter taste. Reliance's takeover of IPCL ought to have spurred the introduction of competition law and practice. In many other instances too chinks in policy will be continually exposed, but can be corrected pro-actively as the process moves on.

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