The Hindu : Gains from disinvestment

Online edition of India's National Newspaper
Tuesday, Jan 28, 2003

Opinion

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Gains from disinvestment

THE CABINET COMMITTEE on Disinvestment's approval of the disinvestment of Government stake in the two oil companies, HPCL and BPCL, is a step forward. It brings to an end almost 12 months of intense wrangling, first within the ruling NDA coalition and later on with the Opposition groups. With the solitary exception of Balco, which was eventually sold to a strategic partner, no other item on the disinvestment agenda has had such strong political undercurrents as the two oil companies' sale. It is noteworthy that while most of the contentious issues were made out to be economic rather than political ones, it was common knowledge that only a political resolution would end this phase of the controversy. For instance, the choice of the appropriate method for divesting the Government's stake in the two oil companies became the dominant point of contention, second only to the decision to bring down the Government's stake in the first place. The Disinvestment Ministry and the Petroleum Ministry have had radical differences over the extent of control and stake the Government should keep post-divestment. The former favoured the strategic sale route and the latter the more gradual public offer route. There are merits in both the approaches but the debate this time was hardly on strict economic principles. Given that the Government stands to lose management control in the strategic sale route, it has been easy to see where the opposition to it came from. Adding to the controversy and the consequent delay was the argument that the country's oil security could be compromised if the two public sector oil companies were sold to private, including foreign strategic, buyers.

In retrospect, it is not just one item on the disinvestment programme — relating to HPCL and BPCL alone — that became a victim of the politically motivated bickering. To a large extent, the entire process received a rude jolt just as it was getting into stride. The Balco sale was vindicated by the Supreme Court judgment, which upheld the sanctity of economic decision-making. From then on, it was hoped that strict economic considerations alone would determine the pace and scope of the public sector sale programme. Indeed, impressive gains were recorded in quick time. The vexatious IPCL imbroglio was settled with Reliance taking control through a bidding process. The Tatas became the strategic partners in CMC and VSNL and Himachal Futuristic in HTL. A number of Government-owned hotels were privatised at one go. Considering that the vast majority of these went through without any significant acrimony, it was felt that the disinvestment programme was finally winning the much-needed consensus and not just in an economic sense.

The controversy over the oil companies has therefore had a negative connotation that has extended to the entire economic reform process. That also meant that previously settled points for opposing the programme came back into reckoning. For example, there has been a debate as to whether other Government-owned companies in the oil sector; IOC and ONGC, should be allowed to bid. That is really a debate over the future role of the public sector but in the instant case became a reason for delaying the decision-making. At an even larger level, the impasse had given a handle to State-level political leaders to rally against other proposals to disinvest. The opposition in Orissa to Nalco's strategic sale has been well recorded and would been have emulated in many other States if there was further delay. Hence, even if the latest decision is a compromise it has plenty of merits.

The programme is back on track although there could be other controversies while it moves into the nitty-gritty of disinvestment. The urgent task now is to ensure that divesting the Government stake is completed in a transparent manner within a reasonable time frame. Clearly, there is a need to maximise the value to the Government and the other shareholders. The appropriateness of the two methods would again be tested. Hopefully, the important lessons learnt can be very relevant to the future success of all economic reform, especially its more contentious aspects. There has been a realisation (once again) that the public sector sale process is above all political and that a compromise is better than no progress at all.

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