The disinvestment programme for 2014-15 seems to have kicked off in right earnest with the Union Cabinet >clearing the sale of government stake in three major public sector companies — Oil and Natural Gas Corporation (ONGC), Coal India (CIL) and National Hydroelectric Power Corporation (NHPC). The sale of 5 per cent stake in ONGC, 10 per cent in CIL and 11.36 per cent in NHPC will generate over Rs.45,000 crore at the current market prices of these shares. The government had budgeted Rs.43,425 crore for the current fiscal from disinvestment and an additional Rs.15,000 crore from the sale of residual stake in already privatised companies such as Bharat Aluminium and Hindustan Zinc. A successful execution of the stake sale plan now approved will go a long way in helping Finance Minister Arun Jaitley to meet his promise of keeping the fiscal deficit at 4.1 per cent for the current year. What augurs well for the government is that the markets are now buoyant, with the S&P BSE Sensex ruling at historic highs and foreign institutional investors actively buying stocks. With a proposal to increase retail quota in the offer for sale to 20 per cent from 10 per cent currently, there is scope for greater retail participation, especially if the government offers concessions to retail investors in the offer price.
The disinvestment programme, since it began in the early 1990s, has managed to meet the budgeted targets only thrice, and the best year was 2012-13 when the government raised Rs.23,957 crore from stake sales. This will, therefore, be the best-ever year for disinvestment revenues, but there could be a couple of hurdles for the government to cross along the way. The employees’ unions at CIL are up in arms, resisting what they call the “privatisation” of the company in which the government now holds 89.65 per cent. There could be tricky days ahead in getting the unions, which have threatened a strike, on board. Such an eventuality could bring down the valuation of CIL and consequently the proceeds from stake sale. The choice of NHPC is also intriguing given that it has not been performing very well. Plagued by dues from some state utilities and delays in project execution, the company is heading for a loss this fiscal year, according to its own communication to the government. The price that the share will fetch may therefore not be optimal for the government. As for ONGC, clarity on the gas pricing policy of the government will help investors to value the company better. The downtrend in global oil prices will reduce the subsidy burden and increase ONGC’s profitability. Having got Cabinet clearance, the disinvestment department should move quickly to complete the sale process and capitalise on the current positive atmosphere.