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By C. R. L. Narasimhan
The decision of the Cabinet Committee on Disinvestment (CCD) to proceed with the divestment in Hindustan Petroleum Corporation Ltd. (HPCL) and Bharat Petroleum Corporation Ltd. (BPCL) is significant even though the modalities were finalised on December 5 last. With the approval at the highest decision making level, the Government's divestment in the two oil companies will now proceed to the relatively more technical and procedural areas. It has taken almost a full year for the proposal to come to this stage. In February 2002, the CCD had approved the disinvestment proposal in principle. Four months later in June, the Disinvestment Ministry mooted the idea of a strategic sale for both companies only to run into a highly publicised controversy with the Petroleum Ministry. The latter has been advocating a more gradual method of divesting by offloading a portion of the Government's stake through a public offer of shares. The debate over the appropriateness or superiority of one method over the other should actually have been settled some time earlier but for a variety of reasons it was resurrected with a vengeance in the two oil companies. It caused a delay and consequently spawned several related arguments against the divestment (at least the way it was conceived). By June 2002, the Petroleum Ministry was pleading the case of other cash rich PSEs to bid for the oil companies if a strategic sale route was at all adopted. The result: more delay. Besides, the opposition to a specific disinvestment programme was soon expanded: The Defence Minister, George Fernandes, among others wanted a review of the entire disinvestment process. At the States level there was a chorus to defer the planned disinvestment in a few companies. National Aluminium Company's strategic sale was opposed by all politicians from Orissa. Many other States were getting ready to follow. In September last, at the height of the acrimony, the Government decided to postpone a decision on the two oil companies by three months. Even after the first week of December when the Government announced a compromise — a strategic sale of HPCL and a public offer route for BPCL — there was speculation as to whether the passage would become smoother. Following a reference from the Congress party, the Government sought and obtained a favourable opinion from the Attorney General on the legality of divestment in the oil companies. In retrospect, it was perhaps to be expected that any sale of public sector units operating in "strategic'' sectors such as oil would meet with that extra opposition. The nationalisation of the MNCs — Caltex, Esso, and Burmah-Shell — which had ruled the roost was considered a success on many parameters. The public sector units, which replaced them, have acquitted themselves creditably even on strictly commercial yardsticks. (Although reform advocates say they did not have to face true competition in an era when the Government determined practically everything including the pricing). Another reason that appeals more to emotion is the need to bolster energy security. A foreign ownership of key companies may compromise it. Not that these arguments did not have any substance whatsoever. It is likely that they will never be logically explained away. Energy security has a special meaning at a time when West Asia is facing turmoil. Also, the moves to let other PSEs in the oil sector such as Indian Oil Corporation and ONGC bid in the strategic sale need not be prompted solely by a desire to retain government control. It can well be argued that the route would have given ONGC an excellent opportunity to integrate its operations. Indian Oil had bid successfully for IBP and strengthened its marketing reach. However, at that time critics had said that it was no privatisation at all. Very likely only those having a vested interest in delaying the reform raised the issue of continuing public ownership. It is evidently easier to preach than practice economic reform measures such as public sector sale. Without a compromise, the two oil companies' agenda would have been pushed back. Now at least other companies earmarked for divestment can be taken up. For the Government a lasting lesson from the experience with HPCL and BPCL Would be that a policy so inherently controversial as disinvestment has to be flexible? The compromise arrived at was perhaps inevitable given the degree of political opposition to the original proposals. At the next stage, as the sale moves into the practical aspects, there will be other controversies that cannot be countered through an inflexible approach. Besides, the debate over the choice of a particular method — a market offer or a strategic sale — has not been resolved. Maybe the ways in which the two oil companies are divested will determine the future methodologies of privatisation. At each stage it will be necessary to keep in focus on the broad objectives of policy in this area. Viewed thus, it should be easier to both fine tune the policy constantly and take a balanced view of the progress.
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