There Is A Road Map For Each Psu

With the Budget session of Parliament coming to a close on May 17, the government appears to be preparing for a careful and determined attempt to push forward a bold disinvestment agenda. Bharti Sinha speaks to Disinvestment Minister Arun Jaitley.

Q: Have you formulated any general guideline for disinvestment, or will each company be treated differently?

A: Each company has to be treated as a separate entity because the position in each sector may be different, the number of employees in each sector may be different, the market position in each sector will be different. Therefore, we prepare a road map and after we determine what the eventual destination of each PSU is going to be, we decide what is to be done with it. Whether there is to be disnvestment or not, whether there is to be disinvestment by a strategic sale, or whether there is to be disinvestment by off-loading into the market _- these are all factors which are specific to each PSU.

 

Q: Is there a fixed percentage upto which government equity is to be disinvested in units of a particular nature ?

A: There is a policy which was set last year that in general we can go down to 26 per cent. This year, as the Finance Minister has announced, even that's not the rule.

Q: Why is the government delaying formulating a competition policy ?

A: No, the law ministry is working actively on the competition policy. I may in this regard clarify that one of the objects of disinvestment is to create competition and not monopolies. In fact the experience of several countries is that where privatisation encourages competition, it succeeds. Therefore, a competition policy is extremely necessary to successfully implement the disinvestment policy.

Q: But the disinvestment programme does not seem to be moving much after the sale of Modern Foods. Is it because a competition policy is not in place?

A: No, that's not accurate. There is a certain shift in the methodology of disinvestment.

Instead of sporadic disinvestment of minority shares of some successful PSUs, we are moving towards determining the future plan of each PSU. In fact, in the last few months, we have been able to examine most of the recommendations of the disinvestment commission and a large number of them have been put into the pipeline. There are cases where global advisers have been appointed. There are cases where they are being appointed.

Q: Will global advisers be appointed in each case?

A: Let me clarify this there is a procedure you follow with regard to disinvestment. Stage one: you determine the future roadmap and whether to go in for disinvestment or not. Stage two: if you decide that it shall go on to disinvestment process, you appoint an adviser. The adviser is an expert in the market. Bureaucrats and ministers are not experts in the market.

Q: How do you appoint global advisors? Are they selected or there are bids for that also?

A: You do ask people to apply for being appointed as adviser. They also specify the fee they will charge. Their credentials in relation to that particular industry are examined. There is a core group of secretaries which peruses each one of these individually and then makes recommendations to the government. The adviser being an expert in the market, studies the market and then advises what the best process is. It's upto us to accept his advice or not. But after he advises us, the disinvestment process is absolutely transparent. On his advice we invite bids from prospective applicants for shares and the market process determines what the best value under the circumstances is going to be.

Q : Would bids be invited in each case or could there be a negotiated sale in some cases?

A: Let me say this. We are not going to settle any transaction by negotiation. Every transaction will be by way of bidding.

Q: What about the sale of Scooters India?

A: Well, we are examining the case. As I said, the same principle, of transparency, of tender, bidding or auction, will be applied in each case.

Q: The opposition Congress has attacked the sale of Modern Foods to Hindustan Lever saying the market value of the company's assets was much higher than the price realised by the government. Your comments?

A: Well, the entire criticism is either out of ignorance or motivated. Let me clarify the Modern Food facts. Modern Foods for the last three years was in loss. Modern Foods could have eventually ended up even going to the BIFR. We had a bidding process, and by a bidding process, the market forces determined what the best value of the sale was going to be. In order to make sure that we got the best value, we had four different valuations done by four different methods including replacement value of assets. We independently also had the land valued. The four values that we had done through experts, which was not known to those companies which eventually got it, ranged from Rs 28 crore to Rs 70 crore. We had the land valued. And on the assumption that there is no restrictive covenant _- that is it is not meant only for industrial users _- the value was Rs 109 crores.

After determining all these values, finally the company was sold through a bidding process which valued it at Rs 165 crore. So the eventual successful party paid Rs 105 crore to the government and Rs 20 crore to the company. That's Rs 125 crores for 70 per cent of the shares. Additionally, I think Modern Foods is a success story for the following reasons. Firstly, the government got out of an area where it should not be doing business and losing money. Secondly, every job in the company has been saved.

Q: But the Congress has alleged in Parliament that out of 4500 employees of Modern Foods, Hindustan Lever has given notice that it will retain only 700 ?

A: Unfortunately, the Congress is not running Modern Foods. It's Hindustan Lever which is running Modern Foods and it's part of the agreement that we have saved the workers interest. Not a single employee has been retrenched till today.

Three, we got by a transparent bidding process a value which was much higher than even the value which our own experts had estimated.

And four, which is the most important one, for a company which was suffering losses and moving towards sickness, for a thousand rupee share, we got a value of Rs 11,490. Now, I think the Congress must have a relook at its own economic advisers who advise them to the contrary.

I want to tell the Congress Pary that a distinction must always been drawn between a mere sale of land and sale of shares of a company. When you sell 74 per cent of a company, value is determined by taking several relevant factors into consideration.

Amongst these are the asset values, the liabilities and the profit potential. Any ill- informed criticism by the Congress doesn't take this into consideration.

Q: If you were getting a good price, why did the government retain 24 per cent in the company ?

A: Well this was the original recommendation of the disinvestment commission. I don't want to go into why the disinvestment commission did actually recommend this. But there are two reasons normally given when an expert body recommends that you retain 26 per cent. The first reason is that the holder of 26 per cent can always block a special resolution.

The second reason for retaining the 26 per cent is that you retain it now and when the company turns around you sell it at a higher price so you may get a better value. This is the other consideration which people have in their mind when they make the recommendation.

Q: Would the governmnet sell any company 100 per cent ?

A: It may in a hypothetical situation be possible.

Q: What's the status of disinvestment in IPCL?

A: Well it's a case which is under consideration of the government.

Q: What about IDPL?

A: Let's not get into individual cases at the moment. One more factor that we may keep in mind is how long can the taxpayer's money be used to pay salaries to employees of closed PSUs. After all, can we allow PSUs to be a burden on the rest of the economy itself. I will give you an illustration.

The total cost of the food subsidies withdrawn in the country is Rs 4000 crores. This is equal to an amount which is lost by one specific PSU in the country.

The question being raised is whether the government be running hotels and then saying that it is losing money in running them.

Q: In the hotel industry, will there be disinvestment in companies or will each hotel unit be privatised separately?

A: That is the recommendation of the disinvestment commission which is under consideration of the government.

The recommendation in relation to ITDC is that two hotels the Ashoka in Delhi and the Bangalore hotel should be given on long-term management contracts, and the rest of the properties should be subsidiarised and sold as separate units.