The story of two of the largest privatizations in India

Almost two decades after the last privatization, a landmark divestment was completed this year when the loss-making national airline Air India was sold to the Tatas. This only became possible after the government switched the course from selling 76 percent of its stake in the national airline to blocking its entire 100 percent stake and giving bidders the option of choosing how much debt they wanted to take on over.

But in the case of BPCL, the government ignored proposals to follow its tried and tested policy of taking a 26 percent stake of the bloc along with management control, just as in the case of Hindustan Zinc and Balco. Instead, it offered its entire 52.98 percent of the company that operated in a sunset sector.

The result – only three bids were received, and two of them struggled to raise funding for the acquisition, which, based on current market value, should be no less than $ 10-12 billion.

So while Air India was being privatized, BPCL was dragging on. Some say that if the government had only offered 26 percent along with management control, it would have offered better value for the remaining portion once the privately managed company added value.

However, the largest divestment in India’s history is expected in the January-March quarter of 2022, with the country’s largest insurer, Life Insurance Corporation (LIC), set to file an initial public offering (IPO). The government currently holds 100 percent of LIC.

The greatest achievement of around 2021, however, was the abolition of the taboo that “family silver” was sold. Privatization helping taxpayers save money has more roots than ever.

The year 2021 was in many ways a milestone in terms of the government’s divestment program as it saw the first privatization in 19 years, classifying state-owned companies as strategic rather than strategic – making it clear to the private sector that the government will go all the talk, when it is said that “the government has nothing to do to do business”.

Two CPSEs, Air India and Central Electronics Ltd, were privatized in 2021 – the first since 2003-04.

While the Tata group bought the ailing airline Air India for 18,000 crore, under the Ministry of Science and Technology, Central Electronics was sold to Delhi-based Nandal Finance and Leasing for 210 million euros.

Work is also underway to privatize 5 CPSEs – BPCL, BEML, Shipping Corp, Pawan Hans and NINL. Alliance Air and three other Air India subsidiaries would also be privatized during 2022.

The tone was set by Prime Minister Narendra Modi in early February, who made a strong case for the privatization of public sector units, and tax aid to sick PSUs weighs on the economy and public units should not be run simply because of their inheritance.

The government unveiled the new Public Sector Enterprises (PSE) policy, which included four strategic sectors in which a “minor” number of CPSEs would be retained and the rest would be privatized or merged, or made a subsidiary of another CPSE or closed.

The four sectors are nuclear, space, and defense; Transportation and telecommunications; Electricity, oil, coal and other minerals; as well as banking, insurance and financial services. In non-strategic sectors, CPSEs are being privatized or considered for closure.

The policy states that NITI Aayog will recommend the CPSEs under strategic sectors to remain under state control or to be considered for privatization or merger, or to be placed under the control of another PSE or closed.

The alternative mechanism for strategic divestment, consisting of finance ministers, road transport ministers and ministers of administration, will give final approval for the retention, privatization or merger, subsidiary or closure of the CPSEs.

The budget for 2021-22 has a target of 1.75 lakh crore from divestments. Of this, It is estimated that 1 lakh crore came from the sale of government stakes in PSU banks and insurance companies – the majority from LIC’s initial public offering. A summary of 75,000 crore are budgeted from the CPSE investment sale.

* Asset monetization

The government also has a four year (FY 2022-2025) roadmap for a 6-lakh-crore plan to monetize assets, a large part of which will come from fallow land owned by central ministries and public institutions in the road, rail and energy sectors.

The sector goals for monetization are street (via 1.60 lakh crore), railways ( 1.52 lakh crore), power transmission ( 45,200 crore), power generation ( 39,832 crore) and telecommunications ( 35,100 million euros).

* Privatization

Since it came to power in 2014, the NDA government has been talking about selling power supplies, especially deficit power supplies like Air India. It tried to pass the sale of government units like HPCL to ONGC, another PSU, as a strategic sale, which even drew criticism from the CAG.

It is now trying to promote privatization as a major reform initiative and has even put state banks and a general insurance company on the privatization list.

Air India who survived on 20 crore a day fund infusion by the government, was a case of an elephant in the room for previous governments.

After an unsuccessful attempt in 2018 when the government sold 76 percent of the national airline, the government launched fresh EoI for 100 percent in 2020. However, Covid delayed the privatization plan and the sales process was extended to 2021. Air India had total debt of 61,562 crore as of August 31. 75% of that debt or 46,262 crore will be transferred to a special purpose vehicle AIAHL before the airline is handed over to the Tata Group by the end of this month.

Work is now under way to monetize Alliance Air and three other Air India subsidiaries – AI Airport Services Ltd (AIASL), AI Engineering Services Ltd, Hotel Corporation of India which operates Centaur hotels in Delhi and Srinagar.

This story was published through a news agency feed with no changes to the text. Only the heading was changed.

Subscribe to something Mint newsletter

* Please enter a valid email address

* Thank you for subscribing to our newsletter.

Never miss a story again! Stay connected and informed with Mint. Download our app now !!

Comments are closed.