Govindraj Ethiraj: A good idea whose time has gone

DOUBLE EDGE

As you turn off from a rare, non-potholed stretch of Mumbai's Western Express Highway towards the domestic airport, a strange-looking, mini stadium-like structure looms to your right. Large beams of steel envelop the seemingly half-constructed building in a lotus-like fashion. This structure is, actually used to be, the Hotel Corporation of India's Centaur Hotel.

Delhi-based Batra Hospitality bought the property in April 2002 in a sole bid for Rs 83 crore. It turns out Batra did not have any grand hotel ambitions, selling the property in six months to Lucknow's Sahara group. For Rs 115 crore.

Around the time bids were coming in for the Centaur, I remember asking a prominent Mumbai hotelier whether his firm would participate. After all, there was a dire need for hotel rooms in north Mumbai, particularly near the airport. He said he would love to but the Centaur's rooms were not the right size. More importantly, he said, the process appeared messy. And his group had enough greenfield opportunities to look at and focus on.

Driving past the former Centaur property and gazing at the massive, rusting beams a few days ago (it's been like this for over a year at least), I remembered the Mumbai hotelier's words and apparent foresight. It struck me that in his own way he was telling me that privatisation as a concept was perhaps never meant to work. Or at best briefly in the 90s. Look at this way, it barely works for the government. And for the successful bidder, it brings with it the perpetual ability to make life difficult.

Vedanta Resources (formerly Sterlite) Chairman Anil Agarwal should know. He is in trouble because the Comptroller & Auditor General has alleged improper valuation of assets of Balco, an aluminium company he won in a privatisation bid. The point is that right or wrong, Agarwal, like the nine other beneficiaries of government assets, were surely not anticipating someone getting up five years later and challenging the deal on such fundamental grounds.

Now, for some reverse crystal ball gazing. What if Sterlite did not acquire Balco, Hindustan Lever, Modern Foods or Reliance, IPCL? Would they have been hugely different today? Part of me feels they would have actually been better off, given the vast changes in the opportunity landscape. Because with the exception of perhaps Reliance and a few others, most of them would have concluded that the management time they lost in managing the transition was better spent elsewhere.

Take the case of the Tatas. They bought VSNL, which gave them a foot in the telecom door. And some totally unwanted and public spats with the telecom ministry. And the fact is that since then, the Tatas have spent more money in acquiring telecom businesses like Tyco Global, Dishnet and Teleglobe than they did on VSNL. Sure, VSNL was the platform but the Tatas were present in telecom before VSNL, through CDMA services provider Tata Teleservices.

What if VSNL had not happened? Surely, a group that has been spending billions of dollars (roughly $4 bn in six years) in snapping up businesses ranging from steel and commercial vehicles to hotels and water around the world would have found a way to satiate its telecom ambitions. Yes, the Tatas did give up their privatisation-dependent aviation dream. In retrospect I, and perhaps they, would say wisely so.

Ditto with Reliance. The group was keen on buying refinery companies HPCL, BPCL, or both. For their refining capacity and marketing network. The disinvestment/privatisation of the two companies never happened. In three years, Reliance will put up a refinery that will be many times bigger than both combined. Not to mention the 30-million-tonne of pure petroleum product already being pumped out of Jamnagar. And sold through Reliance outlets.

Hindustan Lever battled all sorts of bad press in its acquisition of Modern Foods and today wants to sell it. So, looking back, would HLL have gone after Modern Foods today? Highly unlikely, though for strategic reasons as well. What about the many ITDC hotel properties? It seems to me the renovation challenges would make any established hotel chain want to start from scratch.

What does all this mean? Well, entrepreneurs find opportunity everywhere, in fixed assets if not brands, in mines and ore if not in finished steel or aluminium. As some did, in the early days. Would they approach a privatisation proposition with the same enthusiasm today? And more importantly, find the management time and ability to battle controversies that keep cropping up years after the deed is done. Or fathom why no government's actions or contracts can ever be sacrosanct because some political group will find some muck to rake and fling, years later. In one word, No.

The environment is clearly friendlier for a fresh start, in the country or outside. Rather than dealing with stressed assets or worse, stressed politicians. Sure, the debate on privatisation is complex and ways must be found to raise revenue for the government or get it out of being in business. But that's a problem for the government, politicians and economists. Not for India Inc. Industry bodies often say active disinvestment represents liberal government policy. Not necessarily. Their own efforts convey a better and stronger image of India's economic prowess. Guess what, the government can even take credit for it. And by the way, the stock markets too have forgotten. Privatisation is a good idea whose time is gone, at least for India.

Anil Agarwal, for all his initial confidence in Balco's people and machines, must surely have debated whether this whole thing was worth it. I am sure he realises it more than ever before as he gazes at the ruins of the former Centaur hotel, across the road from his corporate headquarters in Mumbai.

govindraj@business-standard.com