In the decade long process of selling equity in the state owned enterprises, the government for the first time has effectively addressed the issue if loss making and sick enterprises in the current financial year. The disinvestment process now truly can said to be evolving, which in turn is addressing some of the crucial issues like keeping the oil PSUs in the race for other corporations or approval of the financial bids for the corporations that are under the purview of Board for Industrial and Financial Reconstruction (BIFR).

Some of these had been hitherto left neglected. It is a fact that government’s disinvestment target will not be met in the current fiscal, yet the confidence of the Finance Minister Mr. Yashwant Sinha is soaring. In his fourth successive budget (2002-03) Mr. Sinha said, “disinvestment receipts for the present year are estimated at Rs.5000 crore excluding the special dividend from Videsh Sanchar Nigam (VSNL) of Rs.1887 crore. Encouraged by these results, I am once again taking credit for a receipt of Rs.12000 crore from disinvestment next year”. According to him the streamlined procedure for disinvestment and privatization and the change in approach from the disinvestment of small lots of shares to strategic sales of blocks of shares to strategic investors had improved the price earning ratios obtained.

Although, the public sector and the issue of sickness therein had been given a virtual go by in the budget speech, the government appears to have recognized the need for taking up such cases where the corporations have negative net worth and in many a cases under the purview of BIRF. So much so that Disinvestment Minister Mr. Arun Shourie said after the meeting of the Cabinet Committee on Disinvestment, chaired by Prime Minister Mr. Atal Bihari Vajpayee, that government might soon have to consider negative bidding as a tool to take care of sick PSUs. This would mean that a sick PSU would be given to a bidder which is least demanding.

The issue came up in the context of government attempting to sell the sick company Jessop. While considering the financial bids, received for the corporation that had a negative net worth of Rs.290 crore, CCD decided to sell its 72 per cent stake in Jessop to Ruia Cotex for Rs.18.18 crore. Finalising the package for forwarding to BIFR for approval, CCD also decided to give a financial support of Rs.63 crore to clear liabilities of banks and others apart from non fund support of Rs.140 crore by way of writing off the interests and government loans. This is first case of privatization of a sick PSU where normally the government has been forced to give one financial restructuring package after other. In case of Jessop also government had sanctioned two financial restructuring since 1986 entailing a burden of Rs.466 crore. Yet it had accumulated losses of Rs.372 crore while recurring an annual loss of over Rs.40 crore.
 

There was hardly any difference in the case of Paradeep Phosphate where net worth was a negative Rs.78.53 crore by March 2000. Despite a restructuring package earlier this year, the corporation would have ended with a negative net worth of over Rs.100 crore. The government sold its 74 per cent stake to sole bidder Zuari-Maroc combine at Rs.151.7 crore. Although the sale was much below the reserve price of Rs.176, the government felt justified selling its stake on the ground that a rebidding in the corporation that was losing about Rs.12 crore a month could have cost a minimum of about Rs.40 crore in 3-4 months needed for redoing the process. As a bonus, the new owners promised to resolve the wage revision issue in a month from taking over the corporation while settling the arrears in three months.

The two incidents reflect the human face of disinvestment as the two decisions were governed largely by considerations of a combined workforce of about 2,700. Apart, the philosophy is to stop the financial hemorrhage in the loss making undertakings. According to Mr. Shourie “ in many cases situation will arise that we will have to go in for negative bidding”. In case of PPL also, the government approved a financial restructuring package entailing over Rs.200 crore including waiver of interests and conversion of loan into preference share capital to give a clean balance sheet. The new dimension in disinvestment, accompanied by written agreement to safeguard interests of workers against retrenchment, is a welcome sign and a sincere pursuit will also gradually give a relief to the exchequer that is forced to work out packages to artificially keep some of these corporations alive.
 

In the process of disinvestment, yet another important development relates to the role of PSUs in the process of disinvestment in other corporations. The government had decided in November that PSU boards would be given enhanced power to take decisions relating to financial bids without approaching the ministries for clearance. At that time Mr. Shourie had said that “Cabinet Secretary will review the process of authorization of the bids by PSUs… this will enable IOC and other PSUs to maintain secrecy of their price bids (for picking government stake in other corporations under disinvestment process.)”

In a matter of months, the decision seems to have taken an about turn. As the CCD approved the Rs.1153 crore price bid of Indian Oil Corporation for IBP Company which was nearly double the Rs.595 crore bid made by second highest bidder Shell, the government also decided to keep IOC out of the process of privatization for two mega petroleum PSUs - Hindustan Petroleum and Bharat Petroleum. This triggered a protest letter from IOC chief Mr. M.A. Pathan who asked government for a rethink or else bar Reliance from bidding for IPCL on the same ground of so called monopoly.

Disinvestment Ministry dismissed the plea of IOC and on the contrary is understood to have moved Cabinet for keeping other oil PSUs also from bidding for HPCL and BPCL. Serious differences surfaced within the government on the Cabinet note circulated barely a day before the CCD on February 27. In the face of opposition, CCD is believed to have rejected the proposal thus paving the way for corporations like ONGC to bid for other oil PSUs. Led by Petroleum Minister Mr. Ram Naik a few other members of CCD are understood to have pointed out the possibility of getting low returns on government stake in case PSUs were kept out from privatization process. Another important factor for seeking a level playing field by them related to completion of mega projects by HPCL and BPCL like Rs.9000 crore refinery in Bhatinda and Rs.6000 crore refinery in Bina respectively. It was said in the CCD of February 27 that completion of these projects could not be made a pre condition for bidding and the sensitiveness of the projects should be kept in mind as these were located in non-BJP ruled States.

Despite a number of court cases and controversies relating to disinvestment decisions, the year going by had been a good one in terms of results. According to the latest Economic Survey not only the government mopped up Rs.5573 crore (table-1) ten more PSUs would be disinvested in the remaining part of current fiscal (table-2). Likewise the survey listed 18 more corporations for disinvestment after March 31, 2002 and these included Air India and Indian Airlines (Table-3). The gradual smoothness coming in the disinvestments process along with a consideration for the workers and revival of sick PSUs through privatization appear to give some stability in implementation to the government policy.