Muddled Privatisation

Updated: Jan 29 2003, 05:30am hrs
In a rare show of unanimity, the Cabinet Committee on Disinvestment (CCD) cleared the contentious privatisation of the two public sector oil giants. But the compromise formula that it has hatched is more worrying than if the government had held on to the PSUs citing national interest and private monopoly as arguments. Petroleum minister Ram Naik, who had fought hard against the disinvestment, has reason to rejoice since he gets to tighten control over both companies. Disinvestment minister Arun Shouries may only be a Pyrrhic victory. In the case of Bharat Petroleum Corporation (BPCL), the 35 per cent equity offering to retail investors through an initial public offering is akin to what one retired bureaucrat called handing Naik a Rs 26,000 crore zamindari built on public funds. BPCL will now be under the direct control of the petroleum minister and his babus without any of the checks and balances that ensure a degree of accountability. With government holding just 26 per cent of its equity, BPCL will no longer be accountable to Parliament or come under the purview of the Comptroller and Auditor General or the Central Vigilance Commission. This pretence at privatisation is far worse than having BPCL taken over by another PSU.

The Hindustan Petroleum Corporation (HPCL) decision is just as bad. Having eliminated public sector oil companies from the race, the government has tilted the balance in favour of private bidders, even waiving the Rs 2,000 crore minimum investment needed for entry into petro product marketing. If foreign companies are not permitted to bid, the government may end up gifting HPCL away. But there is another catch. Although the government will divest 34 per cent of HPCLs equity, it will retain veto power over key policy decisions such as change in Memorandum of Association, share capital structure, winding up of the company, disposing of existing assets or pursuing any new line of business which the government thinks may be detrimental to the interests of the company. This means that the petroleum minister will continue to have a say in the running of HPCL, and only those brave bidders who are confident of their powers of persuasion will bid for the PSU. The decision to keep Oil and Natural Gas Corporation (ONGC) out of the bidding process is also intriguing. Normally one would support the argument that PSUs should not be allowed to bid for other PSUs. But the CCDs decision has taken neither BPCL nor HPCL out of the governments clutches anyway. In the circumstances, ONGCs argument that it should be allowed forward integration into oil refining and distribution in order to compete with the private sector makes sense, though this will not meet the objective of privatisation. Also, allowing the finance ministry to continue to milk a cash rich PSU while not permitting it to take advantage of market opportunities is not fair. That the government has broken through the political opposition to disinvestment is a welcome development, but it would make far more sense if it re-examined some of the details.