The Union government has called off its privatisation process for high-profile Bharat Petroleum Corporation (BPCL) following 2 of the 3 bidders backing out. The remaining bid stands cancelled and the disinvestment process will have to be restarted. Earlier, the privatisation of two other government-owned companies – Pawan Hans and Central Electronics (CEL) – had to be shelved because of a plethora of allegations of undervaluation and other bidding violations.
Privatisation, or the more politically-neutral ‘disinvestment’, of state-run units has been long seen as a tool to rid the government of unretrievable, loss-making companies. It is also a way to sell government equity to lower sarkari debt. However, the hattrick of missed disinvestment targets over the last 3 years is a telling commentary on a floundering programme.
Missed targets
Finance Minister Nirmala Sitharaman’s budget for FY 2022-23 avoided discussion on privatisation, and scaled back the disinvestment target to a modest Rs 65,000 crore from a high of Rs 1.75 lakh crore in the previous year’s budget.
This year, LIC’s IPO has raised for the government Rs 20,560 crore, or nearly one-third of the disinvestment target for FY2023. The total raised so far is Rs 23,575 crore, according to the government’s Department of Investment and Public Asset Management (DIPAM). The line-up this year is: BPCL, Central Electronics, Pawan Hans, Shipping Corporation of India (SCI), Bharat Earth Movers (BEML),Container Corporation of India (CONCOR), IDBI and a couple of banks. Of these, BPCL, CEL and Pawan Hans are stalled.
CONCOR, Shipping Corporation and BEML meanwhile are caught up in circles on how to spin off their property assets before privatisation. In this context, the modest Rs 65,000 crore disinvestment target for the current financial year looks difficult. The previous year’s disinvestment target was missed by a huge margin. Total receipts stood at just Rs 13,561 crore on March 31, 2022, against the original budgeted target of Rs 1.75 lakh crore.The disinvestment target for 2020-21, a whopping Rs 2.1 lakh crore announced by the finance minister, went the same way with just Rs 17,900 crore raised – or just 8.5% of target. The common villain – the Coronavirus pandemic – expectedly must have slowed up the sale process, but if one examines the disinvestment process since 2001, the trend of underperformance is clearly discernible.
Charges of undervaluation
The slow disinvestment process has also been dogged by charges of undervaluation and favouritism. In recent days, Pawan Hans’ transfer of assets had to be shelved after the National Company Law Tribunal (NCLT) passed strictures against the largest of shareholder of the winning consortium, Almas Global, for not honouring its funding commitment to refloat another company under the Bankruptcy Code. The consortium that ‘won’ Pawan Hans – the Star9Mobility Pvt Ltd – also did not meet the minimum net worth criteria of `300 crore.
In another case, the government put on hold this January the letter of intent in favour of Nadal Finance & Leasing Company for the 100% sale of Central Electronics Ltd (CEL) for `210 crore. This was to allow a relook at the valuation after the CEL employees union raised charges of financial impropriety.
Spin-off benefits for bureaucrats and politicians are part of the unwritten code, as a deeper examination of these cases will show. However, privatisation means systemic undervaluation, and that is perhaps the price the nation has to pay for years of malfeasance by some PSUs. In the recent case of Air India’s sell-off, it was only after 5-6 failed attempts and a persistent lack of interest that the Tata Group picked up the airline for `18,000 crore.
It was an undervalued price by a long shot going by the Union government having to settle `61,000 crore of Air India’s piled-up debt before the handover. But that is perhaps why the government managed to shed the loss-making airline. Finally, if we thought that the changeover from a centrist Congress-led government to a more right-wing Narendra Modi regime would see a more determined disinvestment policy, we have been proved wrong. Margaret Thacher’s clarion call that government had no business to be in business was implemented brutally by the Iron Lady in the 1980s with 670 British state-run enterprises transferred to private ownership. In India, Prime Miniter Modi did repeat the ‘clarion call’ but it has remained largely on paper.
On the ground, the public sector is a huge power base of influence and economic control and the present regime is not in a hurry to give it up. ‘Disinvestment’ of driblets of equity, which allows the government to raise much-needed funds without losing control of the unit, is the preferred route typified by the recent LIC IPO. Complete sell-off or ‘privatisation’ is on the agenda too, but only for those companies, which have sunk beyond hope for a turnaround. Looking at the last two decades, the disinvestment path has been so layered with lack of will and questionable practices, that there is little chance of success.