Cheques & Balances

It is true that the government has bungled badly in pricing and timing the disinvestment of GAIL shares which were sold at Rs 70 each last week. The entry of Enron and British Gas through the GDR route also smacks of a give-away, because both these companies may have been persuaded to pay at least Rs 200 a share for a strategic investment in GAIL. An offering to domestic companies would have fetched an equally attractive prices.

It is indeed the job of the opposition to criticise the government, but the elections are over, sothey could do well not to invent scams or lose perspective. They should also check their own record at divestment. Ever since the Congress government began the disinvestment process in the early 1990s, every major party has been in a ruling coalition, or supported it from outside. All of them, without exception, have bungled in handling disinvestment and caused the country to lose several thousand crores of rupees.

The government and its army of bureaucrats refuse to understand that a public offering of shares is all about timing and pricing. A few days can make or break an issue and a couple of years are not even worth discussing.

Steel Authority of India Ltd is a good example of how much can go wrong in two year. Former Finance Minister P Chidambaram has alleged a loss of Rs 550 crore in the sale of GAIL shares. He claims virtue in not selling the shares at Rs 115-120 in October 1997. But it is not as though Chidambaram did not want to sell the shares cheap. He was blocked in the attempt byDisinvestment Commission (DC) chairman G V Ramakrishna who sent a written note of advice against the sale. The United Front government was so furious at the Commission that within months it knocked off its advisory powers.

A good lawyer that he is, Chidambaram naturally uses only those facts which suit his case. The only difference between the last three finance ministers is that Dr Manmohan Singh actually sold shares really cheap and even messed around with the listing requirements of stock exchanges. Unit Trust of India which was the single largest buyer of the packets had to be bailed out last year by transferring these PSUs to a special fund at a cost of Rs 4,800 crore. Who takes responsibility for that action Mr Scindia?

The UF government did well in setting up the DC and promising sensible disinvestment, but it should also take credit for killing its utility and ignoring its excellent reports. The Bharatiya Janata Party (BJP) only continued to treat the DC in the same manner while finding new waysto blunder. A good example is the fact that Ramakrishna’s month-old resignation has not yet been accepted even as the DC’s term is set to end on November 29.

So far, every government has treated disinvestment as a budgetary exercise to raise quick funds, hence there is no effort to understand market mechanism and timing. In the last few years, share prices have always been at their best before October, but no PSU offering clears bureaucratic red tape until November when foreign investors are more interested in booking profits and preparing for the Christmas holidays and bonuses.

Last year, the BJP did a quick fund raising exercise by forcing oil PSUs to buy each others shares. The cross-holding transferred their reserves to government and the market reacted by knocking off a whopping Rs 24,000 crore of their market capitalisation within weeks.

This year too, Sinha will have no option but to ignore Opposition attacks and find another way to raise resources before the budget. There are already indicationsthat the much debated and discarded idea of a Special Purpose Vehicle (SPV) or a National Shareholding Trust (NST) which was possible in some PSUs. The aim, once again, is only to ensure that the government gets some money before the budget.

Disinvestment through the SPV, as had been proposed by former Finance Secretary Vijay Kelkar, is a piece of fiction. It proposes that government would lend money to a SPV to buy PSU shares (in excess of its 49 per cent holding) and will pretend a real divestment through a book entry. The SPV will warehouse these shares until it can offload them in the market and pay back the loan. Since this exercise will neither strengthen PSUs, provide for their restructuring or give them more autonomy, there is little chance that the SPV could sell them later as an attractive investment opportunity.

The NST as proposed by G V Ramakrishna had merely refined the SPV idea, but forcing the government to grant autonomy to PSUs by transferring their entire holding to the NST. This wouldeliminate the need for government funding, provide for two-stage disinvestment giving government a dual opportunity to get money and make the companies more attractive by getting them out of government control, audit and red tape. It was expected to give the government a quick Rs 5,000 crore by providing an attractive investment opportunity to banks, mutual funds and institutions in the first stage. With time running out, the BJP government will have to come up with a quick disinvestment solution. It is possible that the allegations made by the Congress and Chidambaram would have a positive impact by forcing the government to put in place a sensible and permanent mechanism to carry out PSU disinvestment. But Opposition attacks will carry weight only if they are consistent and non-partisan. If the Opposition acts as a constructive watchdog on all matters, only then will it ensure that ruling party politicians are stopped from dispensing favours at the cost of the nation.

How is it that while alleging abackdoor entry to Enron and British Gas, they say nothing about the proposal to appoint Laxmi Mittal on the board of the Steel Authority of India (only Gurudas Dasgupta of the CPI(M) has put out a statement so far); why are they silent about the public auction of IPCL shares; how is it that these political heavy weights maintain a thundering silence on the funding by financial institutions of unsecured holders of Essar Steel’s $ 250 million Floating Rate Note (FRN) default; and why is nobody upset at the Rs 500 crores duty refund sanctioned to Essar Steel by the law minister, against the advice of his own bureaucrats?

Author’s email: suchetadalalyahoo.com