Privatization: Track change helped Air India derail sales of BPCL


Changing tracks helps. But not taking the beaten path is not always helpful. This is the story of two of India’s biggest privatizations – Air India and Bharat Petroleum ().

Nearly two decades after the last privatization, a landmark divestiture completed this year when the loss-making national airline Air India was sold to Tatas. This was only made possible after the government changed the track from selling 76 per cent of its stake in the national carrier to blocking its entire 100 per cent holding as well as allowing bidders to decide how much debt they were willing to take. over.

But in the case of the BPCL, the government ignored proposals to follow its proven policy of putting a 26 percent stake in the block along with management control, just as it had done in the case of

and Balco. Instead, it all offered its 52.98 percent in the company, which operated in a sunset sector.

The result – only three bids came in, and two of them had a hard time getting finances to acquire the acquisition, which based on the current market value should not be below 10-12 billion USD.

So while the Air India privatization was sailing, BPCL pulled out. Some say that if the government had only offered 26 per cent along with management control, it would have provided a better value for the remaining share once the company added value under private management.

But the largest disinvestment in India’s history is expected in the January-March quarter of 2022, when the country’s largest insurance company Life Insurance Corporation (LIC) is scheduled to make an initial public offering (IPO) and list itself. The government currently owns 100 percent of LIC.

Yet the greatest achievement around 2021 was to abolish the taboo that ‘family silver’ was sold. Privatization helps save taxpayers money that has taken on more roots than ever before.

The year 2021 was a landmark in many respects in terms of the government’s disinvestment program, as it saw the first privatization in 19 years and categorized state-owned enterprises as strategic and non-strategic – making it clear to the private sector that the government will talk when it says that ‘the government has nothing to do’.

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 Rs 18,000 crs, Central Electronics under the Ministry of Science and Technology was sold to the Delhi-based company Nandal Finance and Leasing for Rs 210 cres.

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 early in February to put forward a strong proposal for the privatization of public entities and tax support for sick PSUs puts a burden on the economy and public entities should not be run solely because of inheritance.

The government unveiled the new Public Sector Enterprise (PSE) policy, which had four strategic sectors where a “need minimum” number of CPSEs would be retained and the rest would be privatized or merged or subsidized by another CPSE or closed.

The four sectors are nuclear energy, space and defense; transport and telecommunications; power, oil, coal and other minerals; and banking, insurance and financial services. In non-strategic sectors, CPSEs will be privatized or will be considered for closure.

The policy states that NITI Aayog will recommend the CPSEs under strategic sectors to be retained under government control or considered for privatization or merger or put under the control of another PSE or for closure.

The alternative strategy for strategic disinvestment, consisting of the Minister of Finance, the Minister of Road Transport and the Ministers of the Ministries of Administration, will give the final approval for the CPSEs to be preserved, privatized or merged or made into subsidiaries or closed.

The budget for 2021-22 set a target of Rs 1.75 lakh crore from disinvestment. Of this, 1 lakh crore Rs is estimated to come from the sale of the state’s share in PSU banks and insurance companies – the majority from the listing of LIC. An amount of Rs 75,000 crore is budgeted from CPSE share sale.

* Revenue generation for assets

The government also launched a four-year (FY 2022-2025) roadmap for a revenue-generating plan of assets of 6 lakh-crore Rs, much of which will be through brownfield assets in central ministries and units in the public sector across roads, railways and electricity.

The sectoral target set for revenue generation is road (above Rs 1.60 crore), Railways (Rs 1.52 crore), power transmission (Rs 45,200 crore), electricity generation (Rs 39,832 crore) and telecommunications (Rs 35,100 crore). .

* Privatization

Since coming to power in 2014, the NDA government has been talking about selling PSUs, especially loss-making ones, such as Air India. It tried to pass on the sale of state-run devices, such as HPCL to ONGC, another PSU, as a strategic sale, which itself received criticism from CAG.

It is now trying to push privatization as a key reform initiative and has even added state-run banks and a regular insurance company to the privatization list.

Air India, which survived on Rs 20 crore a day from the government, was a case of an elephant in the space of previous governments.

After a failed attempt in 2018, in which the government sold 76 percent of the national airline, in 2020 the government launched fresh EoI for 100 percent sales. But Covid delayed the privatization plan, and the sales process spilled over to 2021. Air India had a total debt of Rs 61,562 per square meter. August 31st. 75% of this debt or 46,262 crore Rs will be transferred to a special purpose AIAHL before the transfer airline to the Tata group before the end of this month.

Work is now underway to make money on Alliance Air and 3 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.

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