‘Strategic disinvestment of handpicked profit-making PSUs would not be financially beneficial at all.’
New Delhi: Keeping in mind the ambitious disinvestment target of Rs 1.05 trillion set in the last Union Budget to be achieved till the upcoming Budget in February, the government has clocked up only Rs 17,364.26 crore, just 16.53% of the target. While some experts have said that the government sells family silver to meet its daily needs, basically because of two interrelated factors—crisis in the economy and the “type of fiscal policy pursued by the government”—others said that the Centre’s decision to cede full management control to buyers in case of Bharat Petroleum Corporation Limited (BPCL), Shipping Corporation of India (SCI) and Container Corporation of India (CONCOR) and transfer 74.2% stake in TDHC Ltd (TDHCIL) and 100% stake in North Eastern Electric Power Corporation Limited (NEEPCO) will not help in narrowing down the fiscal gap.
According to news reports, the government’s 53.29% stake is valued at a shade less than Rs 62,000 crore at the current trading price of BPCL. Additionally, the acquirer will have to make an open offer to buy an additional 26% stake from minority shareholders for about Rs 30,000 crore.
Speaking to The Sunday Guardian, Karkada Nagaraj, an economist, said, “An economy in crisis leads to a situation where tax collections are badly hit, as is happening today. What can be done is try and deal with the crisis first by raising more resources by taxing the rich and resorting to some amount of deficit financing. However, this country would not go for any deficit financing because the rating agencies will downgrade our economy and that may affect the inflow of foreign investment. In fact, it has given the corporate sector a bonanza in the form of a massive tax cut which will hardly lead to any fresh investments by them given the demand constraints in the economy. In a situation like this, the government perhaps thinks that it can raise resources by selling some public sector undertakings (PSUs) and since there may not be any takers for a loss-making concern, it is willing to sell the profit-making ones.”
However, some sources told this newspaper that strategic disinvestment of “handpicked” profit-making PSUs would not be financially beneficial at all as the government is privatising these businesses and thus it will be losing its control over these companies. Even if it helps the government tide over the immediate fiscal crisis, it is an ill-advised move from a medium or long-term perspective. The government will lose a regular, long-term source of income which will affect the fiscal health of the economy later.
Fearing loss of jobs due to the change of ownership had prompted protests from company workers and executives last month. Unions of other state-run companies, including Hindustan Petroleum Corp Ltd (HPCL) and Mangalore Refinery and Petrochemicals Ltd (MRPL), joined forces with BPCL workers to protest against the privatisation.
S.P. Pathak, General Secretary at Petroleum Union, said, “BPCL is a Maharatna company and it works as a backbone for this country. We feel that privatisation will just weaken the working conditions of the company, as a whole. More than 12,000 employees will be affected if the company is privatised. BPCL gives profit in crores. Hence, how can one sell such a company to a random firm at a low rate? BPCL authorities don’t have much say here. We are also upset with the management. There is a wage settlement that is due since one-and-a-half year. Also, the bonus amount is due and the management is not ready to talk about any of this. We have no idea about the service conditions after its privatisation.”
Pathak added, “We attended two Regional Labour Commissioner (RLC) meetings and the management told us that the government has not made any announcement; how can we question them on the basis of media reports. The government very smartly took out an advertisement mentioning that the petroleum gas companies would be sold and BPCL’s name was not on the list. Hence, we were restrained from protesting against the decision.”
Bharat Petroleum was nationalised by an Act of Parliament in 1976 after being set up in the 1920s as Burmah Shell, an alliance between Royal Dutch Shell, Burmah Oil Co. and Asiatic Petroleum (India).
Meena, an employee of BPCL, Noida branch, said, “BPCL was private at first, then it was nationalised, and it was again decided to privatise it. We had joined this company on the basis of job security. We will protest for our rights till the end. A change in ownership may result in the company revising its financial policies, which would disrupt the distribution of posts and also hamper the company’s profile.”
Standing firm on his stand, Binay Kumar Chaudhary, president of CONCOR Employees’ Union said, “CONCOR was given Rs 65 crore in 1989-90 towards paid up capital and till date, we have returned Rs 8,000 crore to the government. Along with that, all factory machineries by the Railways are bought at Rs 200 crore. The total turnover was Rs 7216.14 in the last FY 2018-19 and a total profit of Rs 1,689. Today, we have a capital of Rs 49,000 crore. Why the government is so hell-bent on selling CONCOR is beyond my understanding.”
CONCOR is the only company that does 75% business in the field of logistics, while 25% is done by other companies. Container rail freight services were privatised in 2006 through a policy that ended CONCOR’s monopoly in this business. “Privatisation is going to affect the import-export business in India as CONCOR is the only Navratna PSU in the segment of multimodal logistics and developing dry ports on the hinterland. It is the only company responsible for balance growth of economy by promoting export/import on pan India basis,” Chaudhary added.
Referring to the bidding process, a source from CONCOR said that the Department of Investment and Public Asset Management (DIPAM) would be orginising road shows on BPCL in Canada and the UAE. Potential bidders get around 30-40 days at the expressions of interest (EOI) stage and at the second stage request for proposal (RFP) are invited from the qualified bidders with the process requiring another seven weeks to ensure that bidders have enough time to form consortia and sort all finances. Thereafter, another seven weeks are required for the highest bidder to get security clearance to become a confirmed, selected bidder. The confirmed bidder would then require obtaining all necessary regulatory approvals. However, there is fresh concern regarding the completion of the process in four months’ time, as EOIs have not yet floated for the PSUs concerned.
Speaking to this newspaper, Sayan Chakravarty of Presidency College, Kolkata, said, “The 50-day gap to appoint asset valuer, transaction advisor and legal advisor is not enough for the entire process to complete. In fact, it may encourage corrupt practices in the process and hence, we cannot say that this is feasible. Added to that, privatisation of these PSUs companies will lead to gradual monopolisation, which will discourage competition as there won’t be any pressure to improve or compete in a monopoly.”
On the brighter side, there may be some logic in disinvestment if the revenue generated from it is used for productive investments in the economy like development of physical infrastructure or core sectors that can, apart from generating demand in the economy, also add to its productive potential (which incidentally can attract both domestic and foreign productive investment) and help to get the economy out of the bind as it is in right now. However, Nagaraj said, “The government will use it either for bridging the revenue gap or worse still, for handing out more goodies to its corporate cronies claiming that such ‘incentives’ are necessary for it to invest in the economy.”
Nagaraj added: “A private sector concern which has monopolistic power can be very inefficient, but still show high profits by fleecing the consumers. If the public sector units do not show profits, there are any numbers of reasons for that like the need to meet some social obligations, better compensation, facilities to their employees etc. Then, there is of course the problem of lack of autonomy and government presence in non-strategic sectors. But such issues need to be addressed rather than selling the family silver to enrich your cronies.”
Though the current government is pushing for strategic privatisation, in 2003 during the late Atal Bihari Vajpayee-led NDA government, the Supreme Court had ruled that privatisation of strategic PSUs required parliamentary approval. High standards are expected in this matter of Prime Minister Narendra Modi and his hand-picked team.