The Disinvestment Commission has recommended that GoI's holding in Bhel should be reduced by 20 percentage points to 47.7 per cent. Half of it (10 per cent) should be offered to the FIs and remaining to private equity funds and multilateral agencies. As of now, FIIs own 14.9 per cent, MFs - 12.6 per cent, insurance companies - 3 per cent, public - 1.2 per cent and remaining is held by nationalised banks and corporates. What will be achieved by bringing down GoI's stake to below 50 per cent? Absolutely nothing as far as operational matters are concerned.

The GoI will continue to remain the largest stakeholder. The advantage will be that the CAG's qualifications for sums as immaterial as Rs 3.96 crore (net profit for 1998-99: Rs 569 crore and Rs 556 crore in 1997-98 adjusted for extra-ordinary income, the year of qualification) will be history.

If implemented, Bhel will no longer be a government company but being the largest shareholder, the GoI will always be a major nuisance.Already it has implemented several policies that hurts Bhel. The last being restricting the price preference of 15 per cent (which is a World Bank norm) only to the locally manufactured equipment within the package as against the whole package which was the case earlier. In certain projects, Bhel has to import equipment for completeness of the package specified in the bid.

This is done because either the equipment is not manufactured in the country or to meet the shorter delivery requirement specified in the bid. Such equipment is not entitled to price preference eventhough it meets with the value addition norm prescribed by the World Bank. The impact on the competitiveness of Bhel is anybody's guess. The above preference is also applicable to the supply of spares.

The competitors of Bhel will be at an advantage because they will be able to import equipment/spares duty free and will also be able to quote better prices as the price preference will no longer be available to Bhel. It is clear that the movewill result in neither a lower capital cost nor a lower tariff.

Ideally, the entire stake of GoI should be divested to the public with a ceiling on investment by competing MNCs including Indian subsidiaries / associates. Divestment in Bhel should be on the BSES model. FIs/MFs are the majority stakeholders and the company is run by professional management. Ideally, even FIs stake should have a ceiling. If FII holding can be restricted, why should FIs be an exception. Whatever little improvement in disclosure norms we have is because of FIIs.

The Disinvestment Commission has also recommended divestment of four other public sector enterprises including Hindustan Insecticides (HIL), Hindustan Organic Chemicals (HOC), Rashtriya Chemicals and Fertilizers (RCF) and Rashtriya Ispat Nigam (RINL) to strategic buyer. The commission in its report submitted to the government on Thursday has recommended to offer 51 per cent of the equity of the HIL, RCF and RINL and 33 per cent of the HOCL to strategic buyers withmanagement control.

While the idea of disinvestment is good news as far as market is concerned, the better news is that the commission has recommended a transfer of management control. However, as far as RCF is concerned, disinvestment is not likely to be a smooth process. One of the main reasons is that the company operates in a controlled environment.

In spite of being a low-cost producer of almost all fertilisers, the company is exposed to popular political announcements. If news reports are to be believed, the government is considering bringing back phosphatic and potassic fertilisers under its control. Under such circumstances, with profitability dependant more on Government decisions, rather than efficiency, it is unlikely that any foreign buyers will be interested in picking a stake in the company, let alone controlling stake.

It is also unlikely that the government will announce a decontrol of fertilisers in the near future. Under such a scenario, private sector players, who have postponed theirexpansion plans till the time the government announces a clear and favourable policy, are also unlikely to invest. That perhaps only leaves the ever gullible FIs to bail the government out.

As for HOC, the company has already evoked enough interest from foreign players, considering its strong hold in the organic chemicals market, specially in phenol and acetone.

Hindustan Insecticides perhaps offers one of the most promising disinvestment proposal. Agrochemical companies, worldwide are eyeing new low-cost bases with a decent market share. HIL fits the description perfectly. The company can also do with a influx of capital to venture into manufacture of latest products in the agrochemical industry.

Apple India

The closure of Apple India's software development park may have come as a shock to purists who felt that India's software potential has barely been exploited. Traditional advantages of low cost of development of software and service facilities have attracted all the big names in the sectorsuch as Microsoft, Dell, Compaq, Intel, etc, to India. All these players have set up 100 per cent subsidiaries catering to the requirements of all their clients.

The question then is that whether the closure of Apple India would set a precedent for other MNC companies or the decision of Apple India to quit its Indian operations is solely a company-specific issue. Analysts and industry observers tend to agree more with the latter view. Agreed that the financial position of the parent company Apple World Wide is far better off after the worldwide launch of the I-mac (its new home computer). The company is back in the black and only last month it introduced a notebook on similar lines as the I-mac.

The I-mac has made heavy inroads into the markets of other players. With Steve Jobs back into the job, the company has refocused itself as a product base company, rather than a software solution provider company. With change in focus, it was quite logical that the company would rethink on the economics ofmaintaining a software development centre vis-a-vis outsourcing.

As far as other companies are concerned, they are sure to continue with the existing structure or enter into JVs with Indian players. Chances of having only a 100 per cent subsidiary are less. The service levels of MNC software companies have not yet been to the standards set by Indian companies such as TCS, Infosys, Satyam. Their dollar parity salary structure has also affected their cost competitiveness. Accordingly, most of these companies have sought to enter into JVs with Indian players.

Take GE for instance. The company's annual project billings from India is at $50 million. This is distributed between TCS, Satyam, Patni Computers etc. With such high stakes involved the foreign partners feel it better to have a 50:50 JV with the local partner. Accordingly, we have seen a host of JVs such as the 50:50 JV of TCS with GE.

Now with Apple India moving out of the country, the biggest gainers would be its local partners. In India so far,Wipro has been the biggest vendor for the Macintosh systems developed by Apple. The change in guard for the software development is going to benefit Wipro more than any other player in India.

Emcee (with contributions from Urmik Chhaya, Shishir Asthana & Manish Saxena)