Now that I have been goaded by the CAG and the Government to look over my notes of the disinvestment days, I am making many startling discoveries.
The CAG faults the valuation of the hotels saying that cost of equity and debt was taken on the higher side — remember that difference between those 9.9% and 9.3% and 8.5%; that this resulted in a higher value being taken for the Weighted Average Cost of Capital; and this in turn resulted in a lower reserve price.
The cost of equity in the case of the hotels was taken as 9.3 per cent. There was another disinvestment in the same period. That of the petroleum distribution company, IBP. I am told by the persons in the know that the cost of equity in the valuation of IBP was taken to be 14 per cent. Who was the karta-dharta of the Inter-Ministerial Group for the IBP disinvestment? Who was our constant guide in that disinvestment? The then Secretary, Petroleum.
Next, the CAG takes exception to the fact that in the case of hotels, as there was the customary range of values that resulted from different methods, the mean value of the range was taken, and in one case the lower value was taken. On the same yardstick, what are we to make of the valuation of IBP? Upon excavating the records, I find that on the day the bids were received, the market price of an IBP share was Rs 573. The reserve price was put at Rs 507 per share. That is, Rs 66 below the market price of that day.
We are always told that the market price of public sector enterprises is undervalued. How come the reserve price was taken to be even lower than this, presumably undervalued market price? How come no control premium was built into the reserve price? Who was not just a party to this valuation, but a key voice in guiding and approving it? The then Secretary, Petroleum.
Next, the Price/Earnings valuation yielded a range of Rs 458 to Rs 625; the mean of this valuation came to around Rs 541. The EV/EBITDA (Enterprise Value/Earnings before Interest, Tax, Depreciation and Amortization) valuation yielded a range of Rs 440 to Rs 538. The valuation arrived at by examining comparable transactions fell within the range of Rs 461 and Rs 619 — with a mean of Rs 540. Were the highest values taken? No. Who was not just a party to not taking the highest values, but a key decision-maker in not taking them? The then Secretary, Petroleum.
Even if one takes the mean of the valuation ranges, the valuation would come to around Rs 540. Why was the valuation per share kept Rs 33 lower than this mean value? Who was not just a party to keeping it lower than the mean, but a key strategist in doing so?
The then Secretary, Petroleum.
There are many other similarities to which I will come in due course as the matter proceeds. But for the time being, one question will suffice. Who was the
Secretary, Petroleum then? Vijayendra N. Kaul. Who is the CAG now? Vijayendra N. Kaul!
So, I await with baited breath, the report of the CAG, Vijayendra N. Kaul, on the advice given by and the decisions taken in association with Secretary, Petroleum, Vijayendra N. Kaul! We can then assess whether they too merit a CBI inquiry!
But, to proceed. Much dust has been raised by insinuating that the terms — levy rent, etc. — were changed during the privatization of the hotels. The fact is that the bids that were received in the first round had been below the reserve prices that had been set. These bids had been rejected. The Cabinet Committee on Disinvestment had then directed us to re-examine the terms of sale.
After discussions with the Advisor, the Ministry of Disinvestment listed three alternatives. These were discussed by the Inter-Ministerial Group. It recommended one set. All the three alternatives, along with the recommendation of the Inter-Ministerial Group, were submitted to the Core Group of Secretaries, headed by the Cabinet Secretary. This Core Group recommended one set. This set, along with the other alternatives, was then put to the Cabinet Committee on Disinvestment. It decided on one set. Re-bids were invited on this basis.
In a word, the terms were revised at the direction of, and with the approval of, indeed in consequence of the decision of the competent authority, that is the Cabinet Committee on Disinvestment headed by the Prime Minister .
Now, let us see what happened in the privatization of the Delhi Vidyut Board, and what the CAG has to say about that. Recall that the two companies in the fray were single bidders. Their bids were found to be below the reserve price. The bids were rejected. Now, a curious thing — indeed, a thing expressly prohibited by Government rules — was done. The Congress-I Government of Delhi entered into private negotiations with these two companies. The others who had earlier been in the race were not informed about any change in the terms. They were not called back to the table .
The ‘‘negotiations’’ with these two companies — Reliance and TATAs, the single bidders — bore remarkable fruit. Incidentally, please bear in mind that while the CAG reprimands the NDA Government for accepting bids from single bidders in the hotels case, and thereby not securing what he calls the benefits of competition, he says nothing but nothing of the kind in regard to the benefits of competition having been foreclosed by accepting the single bids for Delhi Vidyut Board !
But I am on the remarkable fruit that those private “negotiations” with those single bidders yielded, and what the CAG has to say about them. The CAG lists the results in a table. The period over which no repayment need be made by Reliance and TATAs was lengthened — not only need they pay later, it was decided that they would also not pay any interest for the elongated period. ‘‘Enhancement of moratorium period’’, writes the CAG, ‘‘will result in depriving the (Government’s) Holding Company of interest amounting to Rs 339.84 crore which would have accrued after the third year.’’ ‘‘Moreover’’, he adds, ‘‘it enables utilization of loan amount of Rs 1,416 crore for two additional years without interest.’’ (Where are all those who have been shouting in the case of those puny hotels that public sector funds — from our nationalized banks — were being used to buy public sector companies? These huge amounts are loans from Government to private companies to take over Government business.)
Next, and of much, much greater benefit to the two single-bidders, the levels to which they were to reduce the T&D losses were reduced from what had been stipulated in the bid documents. This single fruit of ‘‘negotiations’’ deprived the Government of — hold your breath — Rupees three thousand nine hundred and twenty nine crore. That is the CAG’s figure.
There were a series of other ‘‘adjustments’’ in what were termed ‘‘under-achievement and over-achievement of targets’’. The amount that the Government would give to ‘‘support’’ the efforts of the two single bidders was increased from Rs 2,600 crore to Rs 3,450 crore. Even this support of Rs 3,450 crore, records the CAG ‘‘was not adequate to compensate for the loss that would be incurred’’ by the transmission company of the Government as the average consumer tariff would now have to increase by 20 to 30 per cent a year against the 10 per cent that had been assumed ‘‘in the exercise, and I assume in that ‘‘business secret’’, the ‘‘computer modeling’’ of the Advisor!
There were several other ‘‘adjustments’’ that flowed from the ‘‘negotiations’’. To take one example, Mr Jagdish Mukhi, the preceding Finance Minister of Delhi, draws attention to the right to collect outstandings from consumers that was given to these two companies. On 31 March, 2002, this backlog stood around rupees five thousand, four hundred and forty two crore. The two single bidders were given the right to collect this amount, and keep twenty per cent. But the relevant balance sheet showed that only Rupees two hundred and seventy nine crore were receivable by the distribution companies!
The CAG would not need very high maths to figure out that this meant that Reliance and TATAs got the right to keep over one thousand crore for nothing. ‘‘It is like a free gift to them,’’ Mr Mukhi says. Should the CBI not find out whether the gift was given really ‘‘free’’?!
But for the moment, I am on another point. Not on the sumptuous ‘‘free gifts’’ that the Delhi Government gave to those two single bidders, but on what the CAG thought fit to do about the gifts. Recall that —
• The concessions were made after the process had not just commenced, they were given to the single bidders after their bids had been rejected in one round
• They were not offered to rivals who had been in the race earlier, and who may have participated again had they been told that these new ‘‘free gifts’’ were on the table
• They were the result of a procedure – private negotiations with bidders — that is expressly prohibited under Government regulations
It turns out that the Lieutenant Governor had not given his approval to the concessions. The CAG asked the Delhi Government to explain who had authorized the concessions. The Delhi Government maintained that the Core Committee of officials had made the recommendations, and that the Council of Ministers had approved the recommendations of the Core Group. It maintained that the approval of the Lieutenant Governor was not required, and that it had the advice of its very own Law Department to this effect.
The CAG records, ‘‘It was observed in audit that the Transfer Scheme had been framed under the provisions of the Delhi Electricity Reforms Act which vests authority to frame the Scheme in the Government. Section 2(d) of the Act stipulates that ‘Government’ means the Lt. Governor of the NCT Delhi. Hence, any substantial change in the terms of the Transfer Scheme should have been re-submitted to the Lt. Governor for approval. The advice of the Law Department cited by the Government did not pertain to the issue of modifications to the Transfer Scheme.’’
Pause for a moment. That means that, in addition to the three points I just noted — that these ‘‘substantial modifications’’ were made after the bids had been received and rejected; that they had been made through a process which is expressly prohibited by Government regulations; that rivals who had been in the race were not informed that these ‘‘substantial modifications’’ were being made —
• The one authority who alone was competent to authorize the concessions, the Lieutenant Governor, did not authorize them
• And the ‘‘advice’’ that the Delhi Government tried to palm off to the CAG did not pertain to the point at issue at all!
Others will handle the Delhi Government — the matter has been placed before the Chief Vigilance Commission. My interest for the moment is on what the CAG thought fit to do in the circumstances. Please read the following sentence with due solemnity. After setting out the ‘‘modifications’’ — note the delicate word he chooses; after setting out that the Lieutenant Governor did not approve the ‘‘modifications’’; after noting that the Lieutenant Governor alone was competent to approve them, the CAG observes, ‘‘ It is suggested that the Government may obtain post-facto approval of the Lieutenant Governor to the modifications made in the Transfer Scheme .
How very constructive! How very considerate! How very gracious! The fellows do what is expressly prohibited. They give concessions that cost the Exchequer thousands upon thousands of crores. They do not inform other contestants. The one authority that can approve what they are doing does not approve. And all that is to fall upon them as a result is that they should get the new Lieutenant Governor to sign the file!
And in our case? The changes that can be made in the terms of sale are examined at the specific direction of the competent authority — the Cabinet Committee on Disinvestment. The Ministry lists three alternatives. They are assessed by two levels of committees of officials. One set is then approved by the competent authority — the Cabinet Committee on Disinvestment. And the changes are in the tenth order of smalls compared to what the two single bidders were granted by the Delhi Government. Yet, in one case, ‘‘It is suggested that the Government may obtain post-facto approval’’ ! And in the other, a CBI inquiry!
As this is the pattern, I have not the slightest doubt, by the time we are finished with this matter, being summoned by the CBI will become a badge of honour! ‘‘How many times were you summoned by the CBI? What, just twice? I was summoned four times…’’.