Desperate times call for desperate measures. Thus, to find a solution to the present disinvestment wrangle—which has compounded itself into a mini war within the NDA—various options have been mooted by senior politicians, policy-makers and populists. As D-day comes nearer, everyone has jumped into the fray to offer his piece of mind. There's the compromise formula mooted by Arun Jaitley, general secretary of the BJP, another one from the finance ministry, and petroleum minister Ram Naik's old theory.
But as everyone waits for the action to hot up once Prime Minister A.B. Vajpayee returns from Europe, it's clear that each of these options is fraught with problems. And the PM is going to be under attack from some section or the other, whatever path he chooses. "There can never be any consensus over the issue. Vajpayee will have to basically push an alternative down the throats of some of his cabinet colleagues," says an advisor to a cabinet minister.
Currently, it's still difficult to predict what the PM will plump for on the sale of the two oil PSUs, HPCL and BPCL. The only inkling we have is that disinvestment minister Arun Shourie and Vikram Singh Mehta, chairman of the US-based Shell group's operation in India, travelled with Vajpayee on his EU trip. The PM's decision to take two staunch disinvestment supporters is not mere tokenism aimed at foreign investors. It is also a message to the anti-disinvestment lobbies in his cabinet and the Sangh parivar. For, he has realised that the disinvestment snafu is actually a siege for supremacy within the NDA and is being cloaked as a disagreement over economic issues.
"Vajpayee knows Shourie is only part of the problem and that the (real goals of the) vested interests vary. But eventually, the bullets were fired at him from inside his party and coalition. The challenge was to his authority," affirms a former NDA cabinet minister. Quite surprisingly, the united front against privatisation—when Naik joined hands with defence minister George Fernandes and hrd minister Murli Manohar Joshi to oppose Shourie—surfaced right after the appointment of the deputy PM on July 1.
But then what's the solution? How does one put disinvestment back on track? One way out could be to find some middle ground. That's where the Jaitley formula fits in. His senior partner-junior partner option calls for strategic sales of HPCL and BPCL. That's the Shourie line. But to woo Fernandes, Jaitley added that two other PSUs, ONGC and gail, could be allowed to bid—ONGC as a junior partner with Malaysia-based Petronas and gail, similarly, with Shell.
But this formula has been rejected outright by both the Indian and the foreign companies. Oil PSUs feel such a condition makes a mockery of their autonomy status. "As a junior partner, the PSU will have little say in decision-making," says a senior industry source. Moreover, he adds, "somebody in Delhi is deciding what Petronas and Shell should do. That's ludicrous".
The global players agree on this as they would prefer to bid alone. Says a Petronas director, "We have not been approached and we have not approached the PSUs or the government with such a proposal." In fact, such suggestions could even force Petronas to lose interest in India. Already, the Malaysian company has pulled out of the race for buying Shipping Corporation of India, a bid for which was submitted through its subsidiary, Malaysian International Shipping Corporation.
Accepting Jaitley's solution will also run into political rough weather from within the Sangh parivar as the RSS is likely to oppose the move. Says an RSS ideologue, "The government should review the decision of allowing Petronas in the bidding process at all. It's owned by the Muslim government of Malaysia.Shouldn't that be a national security issue?"
Parallel to Jaitley's suggestion comes another possible consensus option. This time from Vijay Kelkar, advisor to the finance minister. Why not first privatise one of the two oil PSUs (BPCL) through the equity route, as wished by Fernandes and Naik, and then the other (HPCL) through a strategic sale, as wished by Shourie? But Kelkar wants only foreign firms to be allowed to bid for HPCL. The only logic for this condition seems to be to keep Reliance Industries out of the process. Kelkar reportedly presented his theory to Vajpayee (before leaving for Europe), deputy PM L.K. Advani and Fernandes. Only Naik told Outlook "he wasn't officially aware of any such plan" and that he came to know of it through media reports.
Dissidents like Fernandes, who have hitherto cried foul over the creation of private monopoly in the form of Reliance in the oil sector, are likely to lap up this idea. To them, it results in a "near-perfect competition" in the sector. Once the Kelkar formula is implemented, the country will have four major players in the refining business: a government-owned Indian Oil Corporation (IOC), a publicly-held BPCL, HPCL owned by a foreign firm, and local private sector giant, Reliance. But Fernandes is still non-committal and senior Samata Party leaders say that he is studying both Jaitley's and Kelkar's proposals and should take a decision by the time Vajpayee returns.
That itself may not solve the problem. For, even Kelkar's recipe has a few drawbacks. Sections within the BJP may say that an oil PSU is being given to foreigners on a platter and those scared of Reliance's growing clout may contend that the latter can exploit a loophole in the proposal. For, theoretically, once BPCL shares are listed, the Ambani family, which has promoted the Reliance group, can mop up shares from the secondary market. (Remember, that's what they attempted with Larsen & Toubro.)
What's surprising is that even the pro-disinvestment lobby has expressed its scepticism over Kelkar's formula, saying it could send contradictory signals about the government's policy and its commitment to economic reforms. They are also shocked by Kelkar's change of heart. For, early last month, Kelkar, who till now had a strong pro-reforms image, along with N.K. Singh, member, Planning Commission, had approached Advani with a "bizarre suggestion" that disinvestment of the oil PSUs be postponed. The reason: the US air attacks on an Iraqi airport, which could lead to volatility in global crude prices.
By now, it is evident that Shourie's insistence on the strategic sale of HPCL and BPCL, with other PSUs being kept out of the bidding process, will be critically reviewed. Most likely, he will have to compromise, despite the fact that the cabinet had agreed to this a few months ago. Senior bureaucrats in the disinvestment ministry who, less than a month ago, categorically stated that any "PSU participation would reduce the entire privatisation exercise to a farce" are now willing to go with any changes wished by the cabinet.
Similarly, Naik's "sale through the equity route only" stand will also not be totally accepted. For one, prices of all the blue-chips are down and therefore the equity route may not fetch attractive valuations. And two, there could be a liquidity problem with so many PSU issues hitting the market. While IOC is keen to raise Rs 1,600 crore, the Maruti Udyog ipo is also in the pipeline. Then, several power PSUs and nationalised banks are waiting to tap the bourses.
No one knows what the final decision will be. And everyone's hoping they will win this round. Shourie's supporters are sure that Naik will have to accept the strategic sale of at least one of the two contentious oil PSUs or resign from the cabinet.The Naik camp thinks the problem is solved once Shourie is sacked and that's what will happen. Well, what both sides need to do is to read Vajpayee's lips. For that, they will have to wait a while.