The Hindu Business Line : Disinvestment job: Consulting cos left guessing

WITH `CEO' chief ministers such as Mr Chandrababu Naidu and Mr S.M. Krishna shown the door, and the Left-supported UPA Government in the Centre putting disinvestment on the backburner, consulting companies are uncertain about the fate of their ongoing Government-related projects, according to industry sources.A host of consultants, including the Big Four and others such as HSBC, JM Morgan Stanley and ABN Amro, as well as home-grown companies including ICICI Securities and SBI Capital Markets, were actively involved in advising the Disinvestment Ministry on the sale of companies over the last three years.

For instance, KPMG was advisor to the Government for the disinvestment of both the Computer Maintenance Corporation and Hindustan Teleprinters Ltd., UBS Warburg advisor for IPCL divestment, while in case of the Maruti public float, Kotak Investment Banking was appointed by the Government as the book-runner.

Also, each of the prospective bidders for a company being divested took on board one or more consultants for advice on the pricing of the target company. A number of these consultants, including those who had got a major chunk of the advisory and auditing mandates, would have been gearing up for guaranteed business in the future.

With the Ministry now wound up and disinvestment off the priority list, a number of these consultants would have to look elsewhere for business.

The Government's decision to de-prioritise privatisation has, in fact, left many of the consultants high and dry, according to industry sources. For instance, those involved in the sale of companies where disinvestment was in different stages of process — including National Fertilizer Ltd (Rabo Bank), Shipping Corporation of India (SBI Caps and Lazard) and National Aluminium Company Ltd (ABN Amro Rothschild/Enam) — are perhaps unlikely to get their fees till the disinvestment process goes through. With the Government still to decide on which companies are to remain on its disinvestment radar, the consultants are unsure if past labour would fetch them their fees.

The State elections results have also left the consultants a worried lot. The Andhra Pradesh administration under Mr Naidu had extensively employed consulting companies to assist the State administration. With the newly elected Congress administration announcing free power to farmers as its first major decision on taking office, the fate of power sector reform projects in Andhra Pradesh looks uncertain. And so does the fate of the advisory role of the consulting companies.

Mr Naidu had also extensively involved strategy consultants McKinsey & Co in a long-term project for preparing a Vision 2020 document, which was to chart out the future course for the State over the next couple of decades. It remains unclear if the new dispensation will continue with the McKinsey project.

However, consulting companies do not seem too perturbed by the change in dispensation. "Our firm policy pertinent to client confidentiality does not permit us to comment on the status of a client engagement, among other things. However, we do believe that reforms, development and economic progress will continue in the State of Andhra Pradesh," a McKinsey spokesperson said.

Among the Centre's new priority areas, the saving grace from the consulting sector's perspective could be that value-added-tax (VAT) is back on the agenda. "VAT is likely to be introduced and broadening of reforms base is expected with a stronger emphasis on rural/farm infrastructure and basic services such as education, healthcare, water and sanitation," said Mr Rajiv Memani, CEO and Country Managing Partner, Ernst & Young India.

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