Government should behave like a responsible promoter

Government's short sightedness through special dividends and share swaps is not only hurting the financials of PSUs but also of the country

Institutional investors had objected to the restructuring of Vedanta group of companies as it would have helped the promoter (parent company) withdraw money in the transaction. Institutional investors also objected to the way Ramalinga Raju wanted to merge Satyam Computers and Maytas Infra since the vested interest of the promoters was very evident.

Fiery shareholders also objected in smaller instances  of money diversion for non-business use like Crompton Greaves buying an aircraft. Yet when it comes to public sector companies, they are silent when the promoter -- Government of India withdraws money whenever it wants. 

 

 

Take the case of Coal India. Repeated attempts by the govt to sell its stake did not work as fund managers refused to buy the story of a company which has no pricing power and cannot take its own decisions. Finally government decided to use the cash hoarded by Coal India and pushed it to announce a 'special dividend'. 

 

A dividend is still better than a divestment program as the existing shareholders also benefit from the inflow. In a stake sale, it is only the promoter (government) who benefits while the shareholders are at the receiving end since the availibility of floating stock goes up, which means more supply and possible price erosion.

 

Desperate to meet its divestment target and unable to control its expenditure, government is hell bent on raising more money from public sector companies. Any other promoter would have shown some reluctance in withdrawing money from a listed company, where other shareholders also have a right on the company's assets, but not so with the government. Petroleum Secretary Vivek Rae puts its tersely when he told reporters, "The Finance Ministry says give us Rs 4,600 crore either by way of disinvestment, cross-holding or special dividend."  He said these words in the backdrop of government's stake sale in Indian Oil Corporation. 

 

Petroleum Ministry had objected to the sale of IOC as it rightly feels the valuation are not right to do so. Government then decided to sell its 10 per cent stake in IOC to other companies like ONGC and Oil India. Oil sector companies are in any case being burdened by petroleum subsidy and asking them to foot the divestment bill will further put pressure on these companies. It has been reported that Oil India has objected to the move of purchasing shares of IOC.

 

The primary duty of public sector oil exploration and production companies is to secure oil needs of the country. However, both our companies, ONGC and OIL India are not able to complete their task for a number of reasons. Firstly, these companies are paid less than half the international price while private sector companies are paid international prices, that too in dollars. These companies are made to bear the subsidy burden of cheaper diesel, LPG and kerosene.

 

No wonder these companies have not been able to make their mark globally. Over the past few years, Chinese companies have beaten Indian companies in acquiring oil assets globally, not only because of their deep pockets but also because of fast decision making. Indian companies at times had to let go of oil reserves because their permissions were stuck in bureaucratic red tape. 

 

Making these oil exploration companies fund its divestment target is depriving the country of much needed oil. Oil imports are one of the two biggest reasons for a high current account deficit. The other being gold import, which the government has managed to control by imposing strict restrictive measures. Such measures cannot be used in case of oil which fuels the country's growth engine. This can only be done by either producing more oil domestically (which has not happened) or making public sector companies acquire oil assets globally. Though dollars will be spent by the country to buy oil from these companies, these dollars would at least be with the public sector companies who would bring it back to the country.

 

Government's short sightedness is not only hurting the financials of oil companies but also of the country. 

 

What is surprising is that shareholders of oil companies have not objected to the step motherly treatment of the government. Government is behaving like it owns 100 per cent of the companies and does not acknowledge the presence of its fellow shareholders before taking such decisions. 

 

It was only The Children Investment Fund, the second largest shareholder after the government in Coal India, who objected to the way Coal India was run. Their aggressive stand should also be credited to some extent for the failure of Coal India to sell more shares a second time. However, such shareholders are missing in oil companies. 

 

No wonder the PSUs are run like personal fiefdoms.