Divestment — A saga of trial balloons & confusion

Worse still, the price had shot up to Rs 268 on December 23, soon after divestment indicating that it had been hammered during the issue). As for the Congress claim that Enron would have paid Rs 300 plus for the shares (for a five per cent stake?), it was not even worth a response. So Sinha grandly stated that “we cannot, as yet dictate international markets.”

No Mr Sinha you can’t. But you can make your PSUs more attractive and time the issue correctly to make get the best price. If he had indeed followedDisinvestment Commission’s (DC) recommendations he would have noticed that it specifically asked for divestment to be complete before August when prices globally are at their peak and not in November when fund managers begin to book profits to meet redemption demands.

It’s not good enough to be satisfied with selling GAIL at the lowest price-earnings multiple among global gas companies – the government ought to have improved valuation by restructuring GAIL or giving it more autonomy. Since the government seems set to stay in power for a full term, it could do well to address the issue of autonomy for PSUs and getting them out of the clutches of politicians and bureaucrats. Otherwise they will remain unattractive investments and begin to turn sick.

One does not want to derail Yashwant Sinha’s disinvestment programme, simply because the alternative is a heavy dose of taxation. But is it too much to demand a coherent and transparent programme which will maximise the value of public sector undertakings(PSUs)? Sinha claims that the GAIL divestment was strictly by the book. The DC recommendations were put up to the Core Group of Secretaries and then cleared by a committee of three ministers. Great.

But what is the procedure being followed in the case of National Thermal Power Corporation (NTPC)? The DC has recommended reforms for NTPC and no divestment. So Sinha and Minister for Power Rangan Kumaramangalam hatched a plan to strip off its reserves to the tune of Rs 4500 crore by making it acquire National Hydroelectric Power Corporation (NHPC).

When Kumaramangalam announced the move in Mumbai, he had said something about selling off individual units of NTPC to raise money. This was quietly dropped in the two-page note that was circulated at the Economic Editors Conference in Delhi, but it could still happen. In Delhi, Kumaramangalam said that NHPC will remain completely independent. Then why acquire it? He also said, “this is not cross-holding”.

In fact it is worse, NTPC’s reserves will be strippedwithout even giving it control over NHPC’s management. But, since neither company is listed, there is no public ignominy in terms of a crash in market prices. Kumaramangalam claims that acquiring NHPC was suggested by ICICI. Will the minister make ICICI’s report public? Has it really recommended acquisition of NHPC without management control or other benefits? I suspect that Kumaramangalam proclaimed NHPC’s continued independence only because the Union had threatened an agitation and its Chairman had made his disapproval clear.

When it was clear that the NHPC acquisition was causing too much of a storm, Kumaramangalam back-tracked a little by announcing that nothing was final as yet and that the cabinet had still to clear the deal.

The confusion does not end there. Apparently, the real action at the conferences is on the sidelines. Kumaramangalam announced NHPC’s takeover on the sidelines of a conference in Mumbai. At that time, NTPC and NHPC claimed ignorance. The minister admitted in Delhi that `poorboy’ NHPC had merely been told of the plan (so much for autonomy) and NTPC had been asked to remain silent.

At the sidelines of the Delhi Conference, the NTPC chairman has apparently said that its reserves would not be stripped and the acquisition of NHPC would be funded by securitisation of its power bill receivables. Market circles, he claims indicate that Rs 8000 crore could be raised through bonds by securitising power receivables. What this means is that banks and institutions will be made to buy these bonds and fund government plans.

The money is planned to be preempted from the plan allocation of States, but given the shape of State finances, this may just be more fiction.

While on securitisation, do not forget the uncharacteristic announcement by Deepak Parekh that institutions would be willing to fund divestment through the Special Purpose Vehicle (SPV) route. Clearly Parekh was asked to float the idea. The question is, did Parekh make the offer as Chairman of Infrastructure Development FinanceCorporation? If yes, then is this not another treasury operation? IDFC is already under fire from ICICI because it is not funding infrastructure projects and ought to be paying a dividend on its treasury earnings? But that is another issue.

The fact is that the SPV route will only weaken the PSUs further. It will transfer funds from institutions to the government and allow politicians to control PSUs without any accountability to the Comptroller and Auditor General or Parliament. The National Shareholding Trust suggested by Disinvestment Commission chairman G V Ramakrishna is a far better idea and opposition parties should be objecting to the SPV rather than making fanciful charges against the GAIL disinvestment.

What is however clear is that the government has no clear plan of action. It is merely groping around and floating several gimmicky ideas which are adding to the confusion and highlighting the lack of coherence. Yashwant Sinha, who claims to have followed procedure in consulting the DC on theGAIL divestment, is not even clear what he wants to do with the Disinvestment Commission. The DC’s term ends on November 29 and its chairman has resigned. When asked about its fate at the Economic Editors Conference, the Finance Secretary P G Mankad, passed the buck on to Manohar Joshi, the Minister of Heavy Industries. Joshi in turn, would not take responsibility.

He said that the Prime Minister will decide the issue hopefully in the next few days. The lack of coherence and direction could not have been more obvious. If all fails, the government will once again shrug and that divestment in India is a process of error and bungle.

Author’s email: suchetadalal@yahoo.com