Achieving current fiscal disinvestment target a tough task

Govt's ambitious disinvestment target for 2013-14 was left stranded after few initial PSU stake sales

Inter-ministerial differences, trade union protests and unfavourable market conditions have left the government's PSU disinvestment programme high and dry prompting Prime Minister Manmohan Singh to intervene to speed up the process to achieve the Rs 40,000 crore target through this route.

The government's ambitious disinvestment target for 2013-14 was left stranded after few initial PSU stake sales. Besides, works on setting up the Exchange Traded Fund (ETF) also kept the disinvestment department busy.

The government so far managed to garner about Rs 3,000 crore through stake sale in six companies to meet Sebi's listing norms and another Rs 1,600 crore through disinvestment of Power Grid Corporation in December.

The drive of the disinvestment department to move ahead with its plan to raise Rs 40,000 crore was often neutralised by the desire of the administrative ministries to get better valuation and better price for the shares of the companies put on the block.

Starting with MMTC, in which the government divested 9.33% stake, the Finance Ministry had to do a lot of leg work to convince its Commerce counterpart to agree for the stake sale which raked in Rs 572 crore to the exchequer.

The 10% stake sale of Indian Oil Corporation (IOC) is still hanging fire as the Petroleum Ministry believes the time is not right for disinvestment of the oil major.

With its oil counterpart putting its foot down on disinvestment plans, the Finance Ministry had to initially abandon planned overseas roadshows for IOC stake sale in October.

The roadshows later resumed, but the Finance and Oil Ministries are still not on the same page for disinvestment of the company.

As the year draws to a close, the Finance Ministry is still staggering to raise the budgeted Rs 14,000 crore through residual stake sale in PSUs.

The Mines and Finance Ministries are at loggerheads over the mode of sale of government's residual stake in Hindustan Zinc and Balco, and the opinion of the Law Ministry was being sought.

While the Mines Ministry feels the Metal Corporation Act should be amended before going ahead with the stake sale, the Finance Ministry thinks there is no need for the amendment and the sale can happen through the auction route.

The government, which currently holds 29.5% stake in HZL and 49% stake in Balco, is looking at exiting the two firms in which Anil Agarwal-led Vedanta Group holds the majority stake. The government had sold controlling stake in these companies between 2001-2003.

To end the stalemate in HZL, Balco and also to facilitate other PSUs to hit the market, Prime Minister Manmohan Singh had to intervene and persuade them for faster clearances.

Singh met ministries of Coal, Mines and Heavy Industries to explore options like share buyback to fast track disinvestment programme of their sector PSUs.

In the face of stiff protest from Coal India unions, the Finance Ministry had to cut down the disinvestment plans for the company from the initial 10% to 5%.

Since unions continue to protest against the stake sale, the disinvestment department is of the view that divestment in CIL is unlikely before January.

A 5% CIL stake sale would fetch around Rs 8,600 crore to the exchequer.

As the penalty threat from market regulator Sebi for not meeting public holding norms by July 2013 had loomed over six PSUs, the disinvestment department was in a rush to lower government stake to 90% in these companies.

It faced stiff opposition from Tamil Nadu government to lower stake in Neyveli Lignite. The Centre had to bow to state government pressure and scale down its stake programme from 5% to 3.56%.

Neyveli shares were alloted only to Tamil Nadu state government PSUs through an Institutional Placement Programme (IPP) at a price band of Rs 58-60 a share, which garnered Rs 360 crore to the exchequer.

Apart from stake sales of individual PSUs, the officials of disinvestment department were busy in setting up the ETF for bunching of PSU shares for disinvestment. Although the officials have been on roadshows to hard sell the ETF, the fund is yet to see the light of the day. The ETF would have a corpus of Rs 3,000 crore.

Although the government has plans afoot to raise about Rs 13,500 crore through stake sale in 6 PSUs -- Engineers India, Indian Oil Corporation, Hindustan Aeronautics, BHEL, RINL and NHPC, they are still to hit the market.

With the general elections due by May 2014, it would be difficult for the government to go ahead with the stake sale in PSUs to achieve the ambitious Rs 40,000 crore target set for the current fiscal.