Should Psu Recast Precede Divestment?

Ramakrishna explained that the government will prefer to restructure and improve the performance of public sector undertakings before going in for disinvestment. It wanted to avoid underselling the shares of PSUs.

But Griffiths, now an advisor to Goldman Sachs, said all efforts to improve the performance of the public sector in the UK prior to privatisation had proved futile. It was only after privatisation that the performance of utilities like British Airways and British Gas improved significantly.

Although Griffiths was at pains to explain that the British model of privatisation need not be replicated in another country, he left behind a queer sense of unease about what should come first: disinvestment or restructuring.

A key point made by Ramakrishna was about the governments plans to disinvest in 140 PSUs in two-three years. If it takes a few months to initiate changes in the public sector and start disinvestment, it will be a time well spent because the government did not want to sell the PSU shares at undervalued prices, he said.

Of the 244 central undertakings, 130 were earning profits and another 30-40 could be brought into the black with some restructuring, he said. These PSUs should be freed from the stranglehold of politicians and bureaucrats and allowed to perform freely, Ramakrishna said.

Griffiths said the main issue was to make assets sweat more and provide higher returns. The acid test of success in privatisation is not the extent of upturn in a company. What is to be seen is whether the quality in the product and services of a public sector company has improved and whether the enhanced productivity has lead to a fall in prices.

British utilities are charging much lower prices in absolute terms than what they did before privatisation.

The quality of services has also improved greatly, he said. Besides meeting these requirements, privatisation has also given a boost to the London Stock Exchange.

The United Kingdom pioneered the concept of privatisation after Margaret Thatcher, the then Prime Minister, managed to turn it into a political issue in 1981. There was a sense of frustration about running the utilities, he said.

Griffiths also had a piece of advice.

The government of a country should increase competition in a given sector, then you need less regulation, he said, while referring to the spurt of regulatory bodies that came up during the privatisation process in the UK.

About 33 leading public utilities in areas like water, gas, telecom, power and airways were costing the government 500 million pounds a year.

All of them have been turned into profit-making companies.

In the past 10 years, the net inflow to the exchequer by way of dividends and enhanced taxes has been 8 billion pounds. This is besides the fact that the government has been spared the expenditure on a number of infrastructure areas.

What is more, the number of shareholders in the stocks of public undertakings has gone up from 3 million to 11 million.

The capital market has grown and sucked in the small investor through small discounts on the billings of services and incentives given to employees.

One of the major problems faced by the UK government was the question of redundancy, particularly in those utilities which were not only overmanned but also paid wages higher than the industry average because of unionisation.

In all cases, we insisted on counseling services for relocating workers. We also opted for a large-scale training and retraining programme, he said.

In some cases like British Telecom, there has been a net growth in employment, he said.

Stock prices of utilities have appreciated and managerial remuneration has gone up considerably.