The AG's opinion comes in useful for the government, which is struggling to meet its disinvestment target, and is looking at options like handsome special dividends from cash-rich PSUs like Coal India and ONGC.
From PSU disinvestment, the government plans to raise R40,000 crore. An extra R14,000 crore is to be mobilised from the sale of residual stakes in HZL and Balco, both private companies.
However, the sale will be in the open market and no call option would be given to Vedanta. Vahanvati's latest stance outlined in a note dated January 8 means the government can go ahead with a stake sale in the open market, notwithstanding a CBI enquiry into the stake sale of HZL to Anil Agarwal-owned Vedanta.
The preliminary enquiry being conducted by CBI is in original disinvestment in HZL in 2002/2003 which has now become fait accompli. Therefore, the opinion already expressed by me on August 5, 2013 is reiterated. I have nothing further to add, Vahanvati stated in the note, a copy of which was reviewed by FE. In his August 5 opinion, Vahanvati had stated that the government could explore selling its 29.5% stake in HZL in the open market, instead of to Vedanta, which is the majority stakeholder in HZL, as it was not a government company since 2003.
I have also stated that this would be a policy decision which would have to be taken after considering all the facts and circumstances, he said.
Vahanvati's views were sought for the third time on the issue after a meeting was chaired on the issue by Prime Minister Manmohan Singh and attended by law minister Kapil Sibal, mines minister Dinshaw Patel, secretaries of disinvestment and mines, and officials from the PMO and finance ministry. It was decided at the same meeting that the ministry of mines will move Cabinet note regarding the sale of residual stake in Balco. The government owns 49% in Balco.
The government initially planned to sell its residual stake in HZL and Balco to Vedanta, which is the majority stakeholder in both companies and had call options available for both. There were, however, legal hurdles as the mines ministry had said that such a move would require Parliamentary approval. That is why the views of the law ministry and the attorney-general were taken.
The finance ministry now favours selling the residual stake in the open market. It is now up to the Cabinet Committee on Economic Affairs (CCEA) to take a final call on the stake sales through an auction method.
There has been stiff opposition from all the companies and ministries concerned, and progress, so far, has been very slow. The government has so far managed to garner just Rs 3,000 crore from stake sales in seven PSUs, including Power Grid Corp, Hindustan Copper, National Fertilisers and MMTC.
Finance minister P Chidambaram has been pressing public sector companies to pitch in with special dividends to tide over a Rs 20,000-crore shortfall expected from disinvestment. With a shortfall in tax revenue also expected, Chidambaram is pulling out all stops to prevent a fiscal blow-out and to keep his promise of containing the fiscal deficit at 4.8% of GDP. The Centre is also hoping to raise Rs 3,000 crore through an exchange-traded fund it will launch next month.