Sucheta Dalal :With friends like them ... (7 October 2002)
Sucheta Dalal

Click here for FREE MEMBERSHIP to Moneylife Foundation which entitles you to:
• Access to information on investment issues

• Invitations to attend free workshops on financial literacy
• Grievance redressal

 

MoneyLife
You are here: Home » Column Topics » Indian Express - Cheques & Balances » With friends like them ... (7 October 2002)
                       Previous           Next

With friends like them ... (7 October 2002)  



The Prime Minister’s support for disinvestment of public sector companies and his attempt to silence his bickering ministers seems to have had little effect so far. The difference is that they now prefix their opposition by claiming that they support the idea. So, hair-brained ideas for and against divestment continue to flow fast and furious — and the media highlights each of them with enthusiasm. The problem is that a band of ministers with clear vested interests and sectarian leaders, living in a mythical past that has no truck with reality, are directing the fate of the country and its economy. Ram Naik is a classic example. Addressing a press conference in Mumbai on Friday he claimed: ‘‘I am totally pro-disinvestment’’. He then went on to pose three questions, which are virtual killers. These are: ‘‘If disinvestment is basically meant for loss making PSUs, should profit making companies also be included?’’‘‘Second, should profit making PSU’s be privatised?’’ Third, should disinvestment of oil companies happen in the first place given their strategic importance to the nation?

Frankly, his first and second questions are the same and the third is utter nonsense. If the government merely wants to sell loss making PSUs, then why the loud noises about pricing? After all private businessmen will only buy loss-making companies, with their unionised labour and a relaxed work culture if they are available cheap. As for the third question, the real strategic importance of all the public sector oil companies lies in their size. They are huge and profitable and that makes it easy for the political class to exploit them. Remember how politicians and bureaucrats opposed Sebi supervision of Unit Trust of India (UTI) for over a decade. It was because of its ‘strategic importance’. UTI was even easier to exploit than the oil companies, and the politicians finally ran it to the ground. The price to the exchequer: a whopping Rs 19,000 crore and counting.

When private companies already have a presence in the entire oil chain from exploration and refining to all downstream products, it is ridiculous to talk about strategic importance of a few PSUs running decades old plants and equipment. Oil and Natural Gas Corporation (ONGC) is the best example of exploitation by the political class right from the days of Indira Gandhi. With the scrapping of the Administered Price Mechanism (APM), the ordinary people have uncomplainingly adjusted to repeated hikes in petrol and diesel prices. But not the bunch of companies who pay less than half the international price for the supply of natural gas by ONGC because they have a peculiar upper price band of Rs 2850. The beneficiaries include a set of government owned fertiliser companies and a set of private sector giants including Reliance, IPCL, Ispat Industries, Essar (power and steel) and Vikram Ispat of the Birla group.

The loss to ONGC on account of these lower prices is a whopping Rs 10,000 crore. ONGC Chairman Subir Raha states in the latest annual report that ‘the administered price (of natural gas) allowed to ONGC is less than half of the prevailing international price, and in the Northeast, less than one third’. ONGC he says ‘is also required to subsidise the gas pool account and absorb other charges’.

Why is the cabinet in no hurry to revise gas prices even when ONGC loses a lot of money and the benefit to private companies runs into several thousand crore rupees? Probably because of ONGC’s ‘strategic importance’ or because our anti-private sector ministers are too busy trying to kill reform and disinvestment. But ONGC is not the only example of Ram Naik’s strange logic. Last week, he reacted to criticism that the postponement of disinvestment had depressed stock prices saying: ‘‘the disinvestment of industries having strategic importance should not be based on what speculators say’. In one stroke, the minister has dismissed all investors as speculators. In fact, the only speculators to make money are those with close inks to the ministers opposed to disinvestment who knew that the cabinet committee would be forced to postpone divestment of the oil companies on September 7.

Also, while Ram Naik is dismissive of the markets (or speculators), the oil companies he is guarding so zealously, think differently. A business newspaper on Friday reported that Indian Oil Corporation (IOC) is planning to tap the same bunch of ‘speculators’ to raise a whopping Rs 1600 crore through an Initial Public Offering (IPO). Since Naik has arrogated responsibility for all oil PSUs, he must know that the market may be full of speculators but they are not fools. The IPO market in India is already almost defunct, and with the raging chaos over privatisation investors are unlikely to pick up IOC shares at a Rs 200 premium. No problem. IOC has other plans up its sleeve. While the Swadeshi brigade and the RSS are busy waxing eloquent about swadeshi asmita IOC plans to go and sell the bulk of its shares to foreigners through an ADR/GDR issue. Maybe IOC has not noticed the speed with which world markets have been falling over the last couple of months – but one can safely promise there will hardly be any takers IOC’s offering. But how does that matter either? An ADR/GDR issue is always a good excuse to go on a world tour with the Minister heading the team doing the road shows. The reported idea of tagging giant oil PSUs as “junior partners” to private bidders for BPCL and HPCL is another idea that fits into the hair-brained category. Another dubious Naik excuse for opposing the sale of BPCL and HPCL because of the ongoing expansion of two refinery projects – the nine million tonne Bhatinda project of HPCL and the six million tonne Bina refinery of BPCL. The two companies have spent just Rs 500 crore on the projects so far while the completion of the two refineries would require Rs 15,000 crore (Bina, Rs 6354 and Bhatinda Rs 9806 crore). Doesn’t prudence demand that these projects see some innovative thinking rather than opposition to divestment? We hear that Saudi Arabia had shown an interest in acquiring the Bina project and linking it to assured oil supplies. Why do we never hear from the minister on these proposals? Probably because of their strategic importance to himself.


-- Sucheta Dalal



 



Recent Comments