The week beginning Monday could demonstrate whether Prime Minister Narendra Modi has the political will to privatise big state-run firms, an area that has remained untouched by his bold, yet often controversial decision-making prowess.
During his first term and since retaining power in the May polls with an even bigger majority, Modi has steered clear of the politically-sensitive issue, but a stiff target of ₹1,05,000 crore set by Finance Minister Nirmala Sitharaman on disinvestment revenue for FY20 could leave him with little options, say sources. Modi’s economic policy managers will place before his Cabinet a list of firms that they say could potentially be sold to private firms.
The list includes oil refiner Bharat Petroleum Corporation Ltd; rail-hauler Container Corporation of India Ltd (CONCOR); ocean carrier Shipping Corporation of India Ltd (SCI); and two power producers, THDC India Ltd and NEEPCO, according to government sources.
BPCL is a maharatna PSU, while Concor and SCI are navratna PSUs. THDC and NEEPCO are mini-ratna PSUs.
The Department of Investment and Public Asset Management (DIPAM) is seeking clarity from the Cabinet on the way forward. “These companies are part of the list being considered for strategic disinvestment. The decision whether to strategically disinvest and if so whether it should be in favour of a private entity or another public sector undertaking is a call the Cabinet has to take,” said a government official briefed on the plan, asking not to be named.
“We are hoping to get a clarity in the coming week,” he said, adding that “consolidation of PSUs will continue”.
The timing could not have been better. The corporate tax cuts announced by the Finance Minister a few days go has buoyed capital markets, improving the valuations of these state-run firms, which may fetch higher prices during the sale.
Market sources said that these five firms could fetch as much as ₹75,000 crore to the government. If Modi chooses to tread a “safe path” on strategic disinvestment, then BPCL could probably be sold to Indian Oil Corporation Ltd (IOC), while THDC and NEEPCO may be acquired by some other power PSUs.
That leavesCONCOR and SCI, both of which do not have other PSUs that could benefit from synergies arising from buying them, except may be for a state-owned oil refiner that could be interested in the crude oil and product tankers of SCI.
“CONCOR and SCI are, hence, ideal candidates for privatisation,” says an industry source.
The sale of CONCOR could benefit from India’s focus on logistics play to cut transportation costs. Besides, both CONCOR and SCI are operating in an industry that is undergoing rapid transformation due to technological disruptions and new global regulations, particularly in shipping, to counter climate change. The down-side of not investing in technology, at least for SCI, could be huge.
“Their debt positions are comfortable, though SCI has borne the brunt of the global slowdown since 2008, reporting losses in many of the years since then unlike its private rivals, both local and global, mainly due to the inflexibilities associated with running a government-managed shipping company.
“The time is ripe to privatise SCI, lest it becomes another Air India or BSNL,” the industry source said, adding that retaining SCI, under government-control for “strategic reasons”, has lost its relevance as a large portion of India’s crude imports are shipped on foreign-flagged ships at competitive rates.
Workforce may not be a cause for concern while deciding on the sale of CONCOR and SCI. CONCOR has about 1,500 full-time employees and another 25 on deputation from the Railway Ministry, while whereas SCI has about 650 full-time on-shore employees and more than 3,000 employed on board ships, a good portion of them on contract.
BPCL, on the other hand, has more than 12,000 employees and could be a worry for Modi, given the grim unemployment scenario in the country, the industry source added.