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Divestment: Will the horse fly again?

Gaurav Raghuvanshi

The future of the government's divestment programme seems to be hinging on the meeting of the Cabinet Committee on Divestment.

After having been postponed no less than four times, the 'crucial' CCD meeting to consider the divestment of Hindustan Petroleum Corporation Ltd and Bharat Petroleum Corporation Ltd may finally happen on Saturday, September 7.

Having earned the ire of almost all his ministerial colleagues, the Rashtriya Swayamsewak Sangh, other Swadeshi groups and opposition political parties, the September 7 meeting will, for
Arun Shourie, probably be his biggest battle as divestment minister.

Till recently, Shourie appeared to be steam-rolling his way through the opposition. Fresh from a major victory by selling off Videsh Sanchar Nigam Ltd, Maruti Udyog Ltd and Indian Petrochemicals Corporation Ltd, Shourie was perceived as being more clever than his seasoned rivals.

But the situation has changed dramatically in the last fortnight. Now, nearly the entire Cabinet has turned against him.

Of course, Shourie has the backing of Prime Minister Atal Bihari Vajpayee and Finance Minister Jaswant Singh to take the
divestment plans forward in the direction he deems best.

With yawning gaps to be filled up by Unit Trust of India and the
Industrial Finance Corporation of India, Singh clearly needs the moolah that Shourie is promising: Rs 50,000 crore (Rs 500 billion).

Even if the money does not come in this fiscal, North Block is confident that its target of Rs 12,000 crore (Rs 120 billion) from divestment proceeds will be overshot. Shourie is also known as the prime minister's blue-eyed boy.

While that might be all that the man who prefers to wear blue really needs, the fact that the rest of the government is against him worries Shourie. Moreover, it is not clear which way Deputy Prime Minister
L K Advani will go.

After all, Advani has to balance his loyalty to Vajpayee and economic rationality with the need to keep key constituents of the government, both those within the coalition and the Sangh Parivar, together.

Not one to easily be ruffled, Shourie has almost retreated into his cocoon. Not surprisingly, he appeared a little dejected when Defence Minister George Fernandes fired his salvos, questioning the rationale for strategic sales, stating that government wealth should, instead, be dispersed across a wider spectrum of investors, as per the British model.

Fernandes, who heads the second most important constituent of the NDA coalition, wants to be invited to the CCD meeting which will decide the fate of HPCL and BPCL, since their sale involves oil security issues.

Petroleum Minister Ram Naik has been insisting on an initial public offer so that both HPCL and BPCL can finance their expansion plans before a strategic sale.

While HPCL is setting up a 9 million tonne refinery at Bathinda in Punjab, BPCL needs the fund from the IPO for its 6 million tonne refinery at Bina in Madhya Pradesh.

According to the petroleum ministry, India needs these two new refineries to ensure oil security and the availability of oil products in north and central India.

The ministry has even finalised a presentation to counter the one made by the divestment ministry at the last CCD meeting and has been pushing for an appointment with the prime minister to convince him before the Cabinet meeting takes place. However, the Prime Minister's Office has not obliged Naik.

Arun Shourie never fails to rattle out his well-documented statistics on how the government has got better price-earning ratios from strategic sales than it has from the public offers it made in the past.

While the government managed price-earnings ratios of between 4.4 to 6.0 when it sold its shares in the markets, it got P/E ratios of 11 to 89 through the strategic sale route.

The government got the best figures in the Maruti and IPCL deals despite the large size of these two transactions. The P/E ratio for Maruti was 89, while that for IPCL was 58.

In cases like Modern Foods, Paradeep Phosphates Ltd and Jessop, the P/E ratio was, theoretically, infinite, since the earnings per share was negative. Interestingly, in the VSNL deal, when the government first sold shares in the markets, it got a P/E ratio of 6. This , however, climbed to 11 at the time of strategic sale.

Shourie has also upset Telecom Minister Pramod Mahajan. He questioned the Maharashtra strongman's objections to the Tatas plans to divert Rs 1,200 crore (Rs 12 billion) from VSNL to a group company within months of acquiring management control in the company for just Rs 1,400 crore (Rs 14 billion).

Considering his proximity to the powers-that-be, Mahajan is not one to take things lying down. He has already played his masterstroke by proposing a mega-merger of the remaining state-owned telecom service providers - MTNL and BSNL.

Even in the Tata-VSNL controversy, he had the last word by forcing the Tatas to smoke the peace pipe and accept his nominee on the sub-committee that will subsequently chalk out the company's future plans.

Other ministers, many of whom face the prospect of losing companies under their administrative control through divestment, have also started raising the anti-privatisation bogey.

The latest to join the no-divestment club is Fertiliser and Petrochemicals Minister Sukhdev Singh Dhindsa who does not want National Fertiliser Corporation to be hived off.

Ask Arun Shourie how he has managed to get the government's privatisation effort on the fast track despite opposition in his own ministry and he will narrate a fable. A criminal who was sentenced to death heard the town crier announce that the king would reward any one who could make his horse fly.

The caveat was this: if, after a week, the horse did not fly, that man would be tortured for seven days and would die slowly and painfully. Being on death row, the man volunteered immediately. The other prisoners in jail were horrified and asked him why he wanted to live for another week if he would only meet such a terrible end.

The man replied: "One week is a long time and anything can happen. The king might change his mind, the horse may run away - or it might actually fly!"

By implication, Shourie's little tale may have one believe that in the case of Nalco, the king did change his mind: the coal and mines ministry agreed to Shourie's proposal of 'making all the three horses run together.'

This is how: until the date of the CCD meeting on Nalco, the ministry insisted that the government would get a better price if it looked for a strategic partner after the American depository receipts and public float of 20 per cent and 10 per cent equity, respectively.

But Shourie managed to convince the CCD to rule that work could begin on all the three stages simultaneously.

In the case of Maruti, the 'horse ran away,' since the heavy industry minister at the time, Manohar Joshi, was elevated to the Lok Sabha Speaker's position merely days before the CCD meeting that cleared the sale of the auto company.

In the case of IPCL, the horse actually flew - Naik and Dhindsa changed their mind, while their ministries kept the issue hanging for the last three years.

Shourie's proverbial horse will, however, have to do something more dramatic in the case of HPCL and BPCL. The minister, who still makes sure he winds up work by 6 pm each evening and goes home to take care of his spastic son, has fought bigger battles only to emerge much stronger.

But this battle may well decide his political future. Known for his penchant for the big fight, many believe that this time, Shourie may have bitten off more than he can chew.

The backing of the prime minister may well be the decisive factor. Only Saturday will reveal if Shourie can pull off this one. Will the horse turn into a pegasus?

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