New Delhi, Oct. 30: The government is working on ways to break the divestment logjam resulting from sharp differences within Atal Bihari Vajpayee’s Cabinet.
The Prime Minister has asked his deputy Lal Krishna Advani to mediate between warring ministers. A series of meetings is slated to begin next month between Advani and disinvestment minister Arun Shourie, petroleum minister Ram Naik, defence minister George Fernandes and mining minister Uma Bharti.
The compromise formula attempts to meld the views of the two sides. The idea is to continue with the controversial strategic sale of government stake in a state-owned company but, as a counterpoise, permit public sector units to bid. Detractors of the strategic sale principle accuse the government of selling family silver to large business houses.
Advani will try to persuade Fernandes and Bharti to abandon their strong opposition to strategic sales. BJP sources expect a resolution before end of the three-month deadline set by the Cabinet on September 7 when it decided to roll differences over divestment under the carpet.
The solution party managers and top bureaucrats are attempting to work out will seek to address the concerns of ministers with a safeguard clause that will give the government an overriding say in the transfer of financial reserves and assets of a government company even after the sale.
The clause is designed to head off controversies such as the Tatas’ decision to funnel Rs 1,200 crore from Videsh Sanchar Nigam Ltd, which they bought from the government, into a group company, Tata Teleservices.
Fernandes has been leading the war against strategic sales, arguing that it amounts to “handing over entities created with the wealth of the people to further enrich the already rich”. In a letter to the Prime Minister, Fernandes warned that “the message going out to the people is that our government is selling away the nation’s wealth... This will hurt us politically.”
As Fernandes is considered to be the most belligerent, the mediation exercise will attempt to moderate his extreme views. The defence minister has not only made it clear that he is against strategic sales, but has also advocated that the government should first sell loss-making units — something the disinvestment department says will be extremely difficult to do.
Fernandes today iterated his stand in Rajkot, where his party is holding a convention, saying that none of the profit-making units and those linked to national security should be privatised. He also called for “total transparency” on disinvestment.
Shourie has been arguing for strategic divestment, where a substantial chunk of government equity is sold to a single entity through bidding, because share sales on the stock market — in its current depressed condition — will not fetch a good price.
Few investors will be willing to buy loss-making government companies, a bitter truth that party managers say needs to be acknowledged. At the same time, Shourie is being asked to accept a demand made by Fernandes and Naik: that PSUs should be freely allowed to bid for other state-owned units if it falls within their business area and if they do not have to take loans to finance their bids.
Shourie’s position is that divestment is based on the basic principle of the government withdrawing from non-core and non-strategic areas. It will defeat this very purpose if PSUs are allowed to bid for other state-owned entities.
Naik has in particular been insistent that oil PSUs be allowed to bid for state-run petroleum marketers like Hindustan Petroleum and Bharat Petroleum that are being put on the block. Another key demand made by Naik that PSUs be given the freedom to raise capital from the market for modernisation or growth is likely to be acceeded to as will be his stand that they should be given time to complete this before being sold.
To address security concerns, it has been proposed that even if private sector bidders succeed in buying PSUs, the government should ensure a degree of control over the firm’s operations in times of emergency so that strategic services like telecom and raw materials like oil and aluminium can be commandeered for national needs.
Besides, the government will keep an eye on developments in these sectors by retaining its shareholdings and directors on company boards even after they are sold.