Editorial: Dealing with Navratnas

It is almost certain that the Rs 6,000 crore sought to be raised through the follow-on public offer of the country's largest power generator "" NTPC Ltd "" would have lined the coffers of the government rather than done anything for the Navratna company since the 4.75 per cent equity to be sold was owned by the government. One view is that the government would have raised the money by selling its stake and then routed it to NTPC so that it could finance its expansion to a 75,000 Mw company. That does not sound logical since Navratna companies do not rely on government funds. Also, it would have been simpler to allow NTPC to expand equity rather than use such a circuitous route to extend financial support, which the company claims it does not really need. The public offer proposal stands rejected by the finance ministry as the current policy does not allow disinvestment by the government in a Navratna company. Since this policy is fairly public, why such a proposal was mooted in the first place is an obvious question to ask.

 

Whether it was to test the flexibility of policy or to test the flexibility of the Left parties, who are supporting the ruling coalition and are completely opposed to disinvestment, it is now obvious that the room for manoeuvre is fairly limited, unless things have really changed since August 2007, when the proposal was first mooted.

The case for diluting government control of companies to enable them to grow to their full potential has been well argued for years. And one way of diluting control is to dilute the government's equity stake. This is a slow process, and for a company like NTPC, which is 89.5 per cent owned by the government, there is no real loss of control if 5 per cent more equity is held by the investing public. The owner (which is the government) will still have to be mindful of minority interests, under the normal standards of corporate governance. Yet, since the government is under political pressure from within and without , every other interest is often sacrificed at the altar of political expediency "" although the Navratna concept was supposed to enable companies like NTPC to function with minimum government interference. Thus, political compulsions are driving the already beleaguered oil marketing companies into the red as they struggle to foot a fast-rising subsidy bill, which is clearly unsustainable. The government needs to be reminded that it is no longer the only shareholder in these companies, though it may be the largest and have a controlling stake. There has to be some sort of shareholders' democracy in place. It may be impractical to think in terms of investor activism, and of a role for clones of Carl Icahn "" the billionaire activist investor who is pressurising Yahoo to ally with Microsoft "" because the context and reality are quite different. However, that should not be taken to mean that the advantages of listing should not be fully reflected in the working of state-owned companies and in the share prices of their stock. After all, the biggest loser when shares get devalued is the government itself, though it frequently seems to be unmindful of the fact.