Govt versus the public sector

Updated: Feb 7 2002, 05:30am hrs
At one level, it can, and will, be argued that none of this really matters anymore, especially now that Indian Oil Corporation has finally managed to buy over fellow public sector oil marketing firm IBP. Yet, it will be instructive to go over the tremendous politicking just one day before IOC finally won the bid, precisely because this is not the first time that various wings of the government have been seen making moves that appear like theyre waging battles on behalf of various corporate clientseither that, or the government is very stupid, and acts against its own interests as a matter of routine.

As The Indian Express reported on Tuesday, the committee of secretaries met to discuss the bids received for both Videsh Sanchar Nigam Limited and IBP, and one of the secretaries there raised the question: why a PSU like IOC was being allowed to bid He argued that IOC buying IBP was not really privatisation, as it was really just one hand of the government paying another. It was also argued, by another worthy, that as IOC had bid too high a price it should be asked to justify it.

Clearly all this was aimed at scuttling IOCs bid. Why else, for instance, should the question of whether a PSU could bid for a fellow PSU come up all over again The issue was discussed, debated and cleared many months ago, and it was only after this that IOC was allowed to submit its bid for IBP. Similarly, if IOCs run as an independent company, as it is supposed to be, why should it have to justify its calculations to the ministry of petroleum No one asked Sterlite to explain why its bid for Balco was higher than that of Hindalcos.

This, of course, is not the first time IOCs been pressured by the government. The case of its pact with Reliance Petroleum is both well documented and is once again the subject of controversy with IOC wanting to walk out of it. The United Front governments petroleum minister Vazhapady Ramamurthy, for those who dont remember, leaned on IOC to sign a completely one-sided pact with Reliance Petroleum. IOCs top brass resisted this pressure and managed to make the agreement a lot fairer but for reasons best known to them and the petroleum ministry, still left sufficient number of loopholes in the contract to allow Reliance to claim that IOC has to pick up all its production. And since it doesnt look as if IOC will agree to thisthe resultant losses will make Enrons Dabhol look like small change. There is once again pressure on IOC to sign yet another agreement with Reliance, this time for a shorter duration, till Reliance is able to set up its own marketing network.

Coming back to the disinvestment story. If IOC could bid for IBP, then why couldnt the state-owned domestic telecom player Bharat Sanchar Nigam Limited be allowed to bid for VSNL Yet, it is a fact that the telecom ministry didnt give BSNL this permission when it was asked some months ago. Nor is it possible to get any reasonable explanation for why the government and telecom minister Pramod Mahajan used every conceivable occasion over the past few months to keep harping on how VSNLs monopoly would end on March 31, 2002. All this really did was to drive down the sentiment about VSNL and consequently also its share price. Ask Mahajan, and hell say that what he said was true, VSNLs monopoly is to end on that date. But theres a subtle difference here. Come April 1, the monopoly that the PSU oil firms had over marketing rights also will come to an end. But when was the last time you heard the oil ministry speak of how IOC, HPCL or BPCL would now have to face up to genuine competition and could get badly hit

Nor is it possible to rationally explain why the telecom minister raised such a hue and cry over BSNLs proposed cellular foray. After BSNL had finalised its bids, the ministry joined the issue, arguing publicly that the prices quoted were way too high, and even threatened to cancel the tenders unless significant price reductions were given by the bidders-a process that would have set BSNL back by at least a year and would have been welcomed by all private sector cellular players who would have been able to expand their services during this period. When it was argued, by this columnist among others, that BSNL stood to lose a lot more from the delays than it would gain by possible price cuts in the equipment, apologists for the ministry pooh-poohed the claim. But then, just as suddenly, the ministry did a U turn and allowed BSNL to go ahead with just token cuts in the prices offered. So what happened Nothing extraordinary actually, just the usual pressure put on PSUs, to prevent them from functioning efficiently.

There are two lessons to be drawn here. One, clearly, since all governments try to cripple their own PSUs, it is in the national interest to sell them off as early as possible. Two, till the PSUs are sold off, bodies like the Central Vigilance Commission need to be very vigilant, to ensure the ministries in charge of the PSUs arent hurting their interests prior to the sell-off.