The Hindu Business Line : Disinvestment lessons

THE PROCESS OF divesting Government's stake in public enterprises has, even at the best of times, never been free from controversy. Quite apart from the ideological aspects of public versus private ownership of economic activity, allegations of malfeasance often fly thick and fast over individual transactions. Even so, the sale of the Centaur Hotel property at the Mumbai airport, belonging to the public sector Hotel Corporation of India, is setting a record of sorts with controversy refusing to die down though it is nearly a year and a half since the deal was struck. Hardly had the ink dried on the agreement when the controversy arose over whether a petrol pump dealership that the hotel controlled was also part of it.

The announcement a few months later that the company which won the bid was ceding control to another group at a considerable profit helped keep the controversy alive. If one discounted any dramatic change in the fundamentals of the Mumbai real estate market within such a short time, the Government lays itself open to the charge of failing to secure the best possible price for its property. Now the Comptroller and Auditor General is holding the Government responsible for causing a loss of Rs 145 crore to the exchequer by altering the terms of the bid.

It is ironic that the Disinvestment Ministry, which has successfully put through nearly Rs 30,000 crore worth of divestiture without too much of a controversy and is, in fact, on course to add another Rs 15, 000 crore to the tally in the next six weeks, should continue to be dogged by controversy over the sale of stake in Centaur Hotel. But there are important lessons. It is always easier to sell off stock in Government-owned and listed companies. The market offers a viable framework not only for the price but also to the choice of recipients of the disinvested assets. A corollary is that the disposal of a composite business asset, if bundled as highly divisible financial claims such as shares or convertible bonds, usually poses fewer problems than if sold on a `slump sale' basis. Again, bundling assets in the nature of leasehold claims with those held on freehold basis is always fraught with risks. In the instant case, it would have been far better had the Government converted the Hotel Corporation's leasehold rights on the land on which the hotel stood by paying a suitable consideration to the title holder — the Airports Authority of India — and then sold the hotel property with a freehold title. This would have eliminated the controversy over whether the reduction in royalty rate was in order. If these lessons are heeded, future acts of disinvestment would be free from the kind of suspicions the present transaction has been tainted with.

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