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Shaji Vikraman

SHORTLY after he took over as the Finance Secretary in mid-1998, Mr Vijay Kelkar floated the idea of a special purpose vehicle (SPV) to help expedite the process of disinvestments, and eventually privatisation.

A few weeks after Mr Kelkar floated his balloon through the pink dailies that year, the then Chairman of the Disinvestment Commission, Mr G.V. Ramakrishna, came out with his own variant of the same proposal styled the National Shareholding Trust (NST). Both the concept papers were consigned to the cupboards until last week when the Cabinet approved a proposal to consider the setting up of an Asset Management Company (AMC) for speeding up disinvestment.

It is no coincidence that the original proposal of the former Finance Secretary, prepared with the backroom assistance of a reputed overseas investment bank, is now being dusted from the cupboard when Mr Kelkar is expected to move into North Block again. This time in an advisory role.

Mr Kelkar's SPV model envisaged public sector companies in the Navaratna category being taken out of the PSU list by reducing the Government's shareholding to 49 per cent. This was to be done by transferring the surplus equity holding of the Government to a SPV where the Government would hold 49 per cent.

To start with, Mr Kelkar had then suggested selecting some PSUs and navratnas such as HPCL, BPCL, MTNL and IDBI. The SPV was to have been incorporated as a non-government company through the process of temporary parking of 51 per cent of the capital holding with a financial partner. What he had in mind here was the model worked out for Petronet and LNG Petronet where State-owned companies formed part of the core promoter group, ut the company remained outside the PSU fold.

On paper the privatisation proposal looked good up to a point. The SPV which was to be set up as a non-Government company was to be thinly capitalised-with a measly Rs 10,000. The GOI (Government of India) was to hold 49 per cent, with the financial partner controlling the majority stake.

At the next stage, the author of the concept paper revealed his hand and that of the so-called rocket scientists of the investment world. The inane ability of investment bankers to complicate any straightforward transaction and show someone a cupboard of skeletons and convince the person that it is a bed of roses was then on display.

According to the SPV concept paper, at that stage, the GOI and the bakra (the PSU which has been identified for privatisation), which is being let off for the kill would provide interest free loans to the SPV. This would be to the extent of 49 and 51 per cent respectively of the total funds required by the SPV. The GOI would then transfer its surplus equity holding over and above 49 per cent in various PSUs to the SPV. In turn, the SPV would transfer funds in lieu of the surplus equity holding transferred by the GOI.

As part of the concept, a holding company was also mooted. The board of directors of this company to be chaired by a government nominee was to drive the privatisation programme in the words of its author. The board's mandate was to take all decisions related to disinvestment of shares including pricing of shares, timing and the selection of intermediaries.

The AMC now being talked off could be modelled on these lines. For a while, this could generate work for a division in the Finance Ministry, which had gone into hibernation. However, the question arises as to what the role of the Disinvestment Ministry would be once an AMC is in place. More importantly, whether Ministers would reconcile to twiddling their thumbs in their offices minus the PSUs under their control.

The setting up of an AMC also pre-supposes the fact that such a company would be in a better position to take all decisions on disinvestment including timing of the sale. Is that better than the collective wisdom of the Cabinet, a former bureaucrat associated with the disinvestment process has sought to know.

The involvement of financial institutions or some banks in the SPV is a virtual fait accompli. For roping them in is crucial to ensure that the AMC is a non-government company. Quite an irony, for this set of institutions which have messed up their operations could well be advising the Government when to sell shares and at what price. And that too, when they should have been on the bakra list for disinvestment.

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