BOMBAY, 22 September 2003 — Things were going well, infact it could have been any better. Yet, all of a sudden, as though the sight of all being good could not be borne, there has been another spoke in the wheel.
After the resounding success of Maruti Udyog, one was sure that the government will rush ahead with the process of disinvestment.
But this time, the decision from the Supreme Court of India (SC) has put a speed breaker on the speeding car of disinvestment. It has restrained the government from privatizing the two oil companies, Hindustan Petroleum Corporation Ltd. (HPCL) and Bharat Petroleum Corporation Ltd. (BPCL) till Parliament approved their sale.
The SC disapproved the government’s decision to privatize these companies through executive orders bypassing Parliament, which had created the two companies after acquiring the assets of Esso and Burma Shell in the 1970s. And as soon as the SC passed this judgment, the Disinvestment Ministry halted the privatization of HPCL and BPCL.
What this judgment of SC means is that all the proposals for disinvestment’s and privatization of various companies created by an Act of Parliament would have to wait until Parliament grants its approval. However, it would not have any effect on the disinvestment and privatization of certain companies in the past.
If one may recollect, the government had gone ahead with the sale of the two companies after getting Attorney-General Soli Sorabjee’s opinion that disinvestment in the two corporations did not require parliamentary approval. And due to this, hoping to get a chunk of these healthy PSUs, the private sector had evinced their interest. Reliance Industries has completed scrutiny of HPCL books and plants while British Petroleum was in the midst of the process. Royal/Dutch Shell was next in line. Others in the race for acquiring a 34.01 percent stake in HPCL were Kuwait Petroleum, Petronas of Malaysia, the Shell-Saudi Aramco combine and Essar Oil. Now all this has come to a halt.
Following this judgment, Disinvestment Minister Arun Shourie has called for a review of the proposed privatization of the State Trading Corporation and the Shipping Corporation of India.
At the same time, there is news that disinvestment of National Fertilizers has run into rough weather as the price bids received for the government’s 51 percent stake in the company is less than the reserve price arrived at by Rabo Bank, the adviser for the sale.
Yet, what came as a surprise is that despite this decision by SC, the government went ahead and invited financial bids for the privatization of Hindustan Copper. Bidders have been given a month’s time to submit the financial bids. The government proposes to sell its entire 98 percent equity in the copper company to a strategic partner along with management control. Well, one does not know now whether this will go through or the bidders will come forth, given the uncertainty.
This judgment by the SC will now have far reaching consequences on the disinvestment program of the government. As such the Indian government is (in)famous world over for its red tapism and bureaucratic way of functioning. And in this atmosphere of liberalization, instead of making the processes speedier by removing the roadblocks, more obstacles seem to have come in. If prior approval of the legislature is to be taken in each and every case, progress is bound to be excruciatingly slow. With this landmark decision of the SC, the government’s disinvestment target for the year looks like a bad joke and the disinvestment target of Rs.132.00 billion for 2003-04 seems way out of reach. Till now, this fiscal, the government has garnered Rs.9.93 billion from Maruti’s public issue and Rs.181.8 million from the strategic sale of Jessop & Co. to Ruia Cotex. And as per the earlier schedule, HPCL was to have the issue some time in November and BPCL was scheduled for February next year. The government had targeted disinvestment of HPCL, BPCL and Nalco to garner over Rs.100.00 billion.
It would be interesting to note that since the disinvestment process began in 1991-92, the government has been able to target for the year only thrice, the last one being in 1998-99. Modern Foods was sold to Hindustan Lever Ltd. in January, 2000. Since then 11 other companies, including VSNL, CMC, IPCL and Balco, have been sold to private partners. Paradeep Phosphates is now doing well under the new management Zuari-Chambal. Nineteen hotels belonging to the India Tourism Development Corporation and three of the Hotels Corporation of India have also been sold. And through the sale of all these, the government has managed to earn around Rs.110.00 billion.
Well, the latest news following this decision by the SC is that the Petroleum Ministry is drawing up a proposal for the Cabinet to offer more than 26 percent of the government’s equity in HPCL to the Oil and Natural Gas Corporation (ONGC) on a nomination basis. This way while management control of HPCL will be pass on to ONGC, it will still remain a government company. The other option is to merge the two companies.
If this works out, the government is confident of getting closer to its disinvestment target of Rs.132.00 billion for the current fiscal and at the same time comply with the Supreme Court ruling. Moreover, the ONGC officials said that the corporation had substantial cash in hand to pay anything up to Rs.80.00 billion for acquiring management control of HPCL.
As usual, we can only keep our fingers crossed and hope that the process of disinvestment goes and India is able to get closer, if not meet, its disinvestment target this fiscal.