Privatisation programme gathers pace

For the public sector disinvestment programme the current fiscal year (2001-02) has been momentous in many ways. For the first time ever in its rather chequered history of ten years, it looks like gathering momentum. It is true that in terms of the financial targets set by the Finance Minister in the last budget, this year too may see a shortfall. Latest figures pertaining to mobilisation (through completed PSE sales-involving CMC, HTL and the hotel properties of ITDC and Air India along with certain projected sales) show that there would be a major shortfall in relation to the budgetary target of Rs. 12,000 crores. Just over two months remain before the financial year draws to a close.

There is a possibility of one or two ``big-ticket'' PSE sales materialising. VSNL looks promising and the sale of the petrochemical major IPCL has been a long drawn out process already. It is probably keeping these in mind that the Government is confident of springing a surprise by the year end. However, the PSE sale programme ought not to depend on the achievement of budgetary targets alone to be pronounced a success.

At best, realisation of the budgetary goals is good from the public finance point of view. But there has always been a controversy as to whether it is good to measure a major economic policy such as the PSE programme in narrow fiscal terms. According to one view it is neither good for the unit that is being sold or divested nor for the overall interests of the programme. On the other hand, target setting through the budget gives it a sense of urgency. It may be prudent to leave behind those issues — after all in the past ten years no clinching arguments either way have appeared — and look at the PSE programme the way it is evolving now.

Welcome impetus

That the programme is gathering pace is there for all to see. The Supreme Court judgment on the Balco episode has given it the much needed impetus. The Government has also shown a reasonable amount of flexibility-note how the two national air-carriers were taken of the list, partly because when their own inherent weaknesses could no longer be camouflaged and partly in the wake of the collapse of the civil aviation industry worldwide after September 11. Note also how quickly the terms of sale of the hotel properties that elicited meagre bidding interest in the first round (Delhi Ashok especially) were changed.

Flexibility, is a sign of confidence. It extends to the method of divestment. While the strategic sale route seems to be the preferred one so far, it will by no means be insisted upon in all the cases. As it happens the current fiscal's first two successful divestments — HTL and CMC — were of the strategic sale variety and went through without any kind of protest. Incidentally, evaluating this method from the point of view of realisation to the Government is more complex than is realised. For one, the Government keeps a stake in all the units so divested.

Those should fetch a price, most certainly at levels higher than what the Government got the first time. Second, the private party bidding for these units pays a premium for management control (sometimes even before gaining equity control).

Not all the valuation exercises can determine the latter with a degree of accuracy. That is going to be the major issue when negotiations take place with Suzuki over Maruti.

Not in isolation

Finally, this year there has been a realisation that the PSE sale programme cannot be viewed in isolation from the other economic policies.

Therefore in specific cases success or failure of the divestment programme impinges on say the telecom policy (for VSNL) or on petroleum deregulation (for IBP and other state-owned oil companies). The opening up of long-distance telephony in two months time affects VSNL's valuation as do the relatively easy entry barriers placed for the new entrants. Again, petroleum deregulation is on the anvil. The administered price mechanism (APM)for oil products will go (for most parts).

For the public sector oil companies however APM's legacy will remain. The Government says it will extinguish the oil pool account (now in the red by nearly Rs. 11,000 crores) by issuing these companies bonds.

Even more specifically, the Government while sharply raising the excise duty on petrol and diesel ensured that the oil companies bore the tax. At the least the cash flows of these PSBs will be affected.

And talking of the Government's overbearing reach in PSE matters no one can ignore the extraordinarily generous dividend which VSNL forked up just ahead of its privatisation.

Though standing out for its sheer extravagance, VSNL is in the good company of other well run PSEs such as ONGC and HPCL. Nobody, therefore, should judge the disinvestment policy on a standalone basis.

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