Privatization: lane change helped Air India and derail sale of BPCL


Changing lanes 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 (BPCL).

Almost two decades after the last privatization, a historic divestiture came to an end this year when loss-making national carrier Air India was sold to the Tatas. This was only made possible after the government changed its path from selling 76% of its stake in the national carrier to blocking its entire 100% stake as well as giving bidders the option of deciding how much debt they were prepared to incur. on.

But in the case of BPCL, the government ignored suggestions to follow its proven policy of taking a 26% bloc stake with management control, just as it did in the case of Hindustan Zinc and Balco. Instead, he offered his entire 52.98% to the company operating in a declining industry.

The result – only three bids were received, and two of them struggled to organize financing for the acquisition, which at current market value is expected to be no less than $ 10-12 billion.

So while the privatization of Air India progressed, BPCL drags on. Some say that if the government had only offered 26 percent with management control, it would have given better value for the remainder of the stake once the company added value under private management.

But the biggest divestment in India’s history is expected in the January-March 2022 quarter with the country’s largest insurer, Life Insurance Corporation (LIC) expected to make an initial public offering (IPO) and list on the stock exchange. The government currently owns 100 percent of LICs.

Yet the greatest accomplishment of about 2021 was to get rid of the taboo that “family money” was sold. Privatization saves taxpayers more money earned than ever before.

2021 was a pivotal year in many ways in terms of the government’s divestment program, as it saw the first privatization in 19 years and categorizing SOEs as strategic and non-strategic – making it clear to the private sector that the government will walk the talk when it says “government doesn’t have to be in business”.

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

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

In addition, work is 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 in 2022.

The tone was set by Prime Minister Narendra Modi in early February, who advocated strongly for the privatization of public sector units and tax support for sick PSUs, which places a burden on the economy and sector units. public should not be managed just because of inheritance.

The government unveiled the new Public Sector Enterprise (PSE) policy, which included four strategic sectors in which a “minimum” number of CPSEs would be kept and the rest would be privatized or merged or affiliated with another CPSE or closed.

The four sectors are atomic energy, space and defense; transport and telecommunications; electricity, petroleum, coal and other minerals; and banking, insurance and financial services. In non-strategic sectors, the CPSEs will be privatized or their closure will be considered.

The policy states that NITI Aayog will recommend CPSEs in strategic areas that are to be kept under government control or to be considered for privatization or merger or placed under the control of another PES or for closure.

The alternative strategic divestment mechanism, composed of the Minister of Finance, the Minister of Road Transport and the Ministers of Administrative Ministries, will give final approval for the maintenance, privatization or merger of CPSEs, their subsidiaries or their closure.

The budget for 2021-22 has set a target of Rs 1.75 lakh crore for divestment. Of this, it is estimated that Rs 1 lakh crore would come from the sale of the government’s stake in PSU banks and insurance companies – the majority coming from LIC’s IPO. An amount of Rs 75,000 crore is budgeted from the sale of CPSE shares.

* Asset monetization

The government has also launched a four-year roadmap (fiscal year 2022-2025) for a plan to monetize assets of Rs 6 lakh-crore, much of which will go through brownfield assets of central ministries and government entities. public sector through roads, railways and Power.

The sector target set for monetization is road (over Rs 1.60 lakh crore), railways (Rs 1.52 lakh crore), electricity transmission (Rs 45,200 crore), power generation electricity (Rs 39,832 crore) and telecommunications (Rs 35,100 crore).

* Privatization

Since coming to power in 2014, the NDA government has talked about selling PSUs, especially loss-making ones like Air India. He has sought to portray the sale of state-run entities, such as HPCL to ONGC, another PSU, as a strategic sale, even drawing criticism from CAG.

It is now trying to promote privatization as a key reform initiative and has even added state banks and a general insurance company to the list of privatizations.

Air India, which was surviving on a government infusion of Rs 20 crore a day, was a elephant in the room for previous governments.

After an unsuccessful attempt in 2018, when the government sold 76% of the national carrier, in 2020 the government launched a new EoI for a 100% sale. But Covid delayed the privatization plan and the sale process spilled over to 2021. Air India had a total debt of Rs 61,562 crore as of August 31. 75% of that debt or Rs 46,262 crore will be transferred to an AIAHL special purpose vehicle before handing over the airline to the Tata Group by the end of the month.

Now, work is underway to monetize 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.

(Only the title and image of this report may have been reworked by Business Standard staff; the rest of the content is automatically generated from a syndicated feed.)


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