The privatisation move comes against the backdrop of a Supreme Court judgment against mala fide and arbitrary allocation of natural resources to private players without following a fair, transparent method. By SAGNIK DUTTA in New Delhi
WITH THE NATIONAL DEMOCRATIC ALLIANCE (NDA) government’s concerted move to initiate disinvestment in major public sector enterprises, equitable and fair allocation of natural resources is the major topic of public discourse. It is significant that the government’s move comes against the backdrop of a Supreme Court judgment against mala fide and arbitrary allocation of natural resources to private players without following a fair, transparent method.
On September 10, the Cabinet Committee on Economic Affairs approved the sale of 10 per cent stake in Coal India Limited (CIL), 11.36 per cent in NHPC Ltd and 5 per cent in the Oil and Natural Gas Corporation (ONGC). The NDA government has projected the policy decision of selling off stakes in major public sector enterprises as the only feasible way of meeting its fiscal deficit target of 4.1 per cent by March 31.
The disinvestment move is being touted as a measure to revive the economy. But it reflects the lack of clarity on energy policy and the failure to ensure that public sector entities contributed to making the country self-sufficient in energy. This is borne out by the attempt to disinvest CIL, the largest coal producer of the country, instead of improving its productivity to address the massive coal shortage which has led to a large-scale dependence on imports. The government’s excessive zeal to go ahead with disinvestment is also evident in its insistence on a 29.5 per cent stake sale in Hindustan Zinc Limited (HZL), a public sector company which was formed in 1966 with the objective of utilising a scarce mineral resource for public good.
Private sector inefficiencyThe Supreme Court judgment which came down heavily on both the United Progressive Alliance (UPA) and the NDA governments for their arbitrary and non-transparent allocation of a scarce natural resource like a coal block has highlighted the inefficiency and incompetence of a number of private companies that were awarded coal blocks from 1993 to 2009. It has also underscored once more the importance of the public sector as a regulator that could ensure efficient utilisation of natural resources. In fact, the Supreme Court’s observations in the recent judgment cancelling all but four of the 218 illegal allocations made to private parties are significant. The court directed that CIL supply coal from the 42 deallocated coal blocks which had already begun production. The court noted: “That the CIL is inefficient and incapable of accepting the challenge, as submitted by learned counsel, is not an issue at all. The Central government is confident, as submitted by the learned Attorney General, that the CIL can fill the void and take things forward.”
Against the backdrop of this mega scam, there is a renewed emphasis on the significant role CIL can play in meeting the country’s energy demands. However, this does not get reflected in the recent policy decision of the NDA government. The decision to disinvest 10 per cent stake in CIL reflects the government’s lack of focus in addressing the systemic issues of the public sector entity and the broader issues of energy security.
Speaking to Frontline, Prabir Purkayastha, an expert in the field, said: “The larger issue here is of CIL not being able to put in investments to enhance its productivity as it has not been granted the autonomy to utilise its investible surplus. The Ministry of Coal still decides the manner in which the public sector entity utilises its surplus, resulting in a situation where CIL is not able to develop mines or improve its capacity. Also, the disbanding of the Planning Commission without an alternative being put in place as yet has meant that there is no estimate of the amount of power and electricity required. Also, the money being generated through disinvestment will only be used to meet the fiscal deficit target instead of helping CIL generate funds internally.”
The disinvestment move is also being seen as a move to do away with the gains made from the nationalisation of coal in 1973. Ashok Rao, president of the National Confederation of Officers Association of Central Public Sector Enterprises, said: “The nationalisation of coal was carried out to stop indiscriminate, savage mining by the private sector, which was only leading to private gains without a substantial improvement in the energy security of the country. Following nationalisation, there was a comprehensive thinking on energy policy in the 1970s as a result of which fuel policy committees were set up and fluidised bed boiler technology and coal gasification technology were developed.”
He pointed out that there was no logic in disinvesting stakes in CIL when the company was sitting on excess reserves: “At a time when CIL has surplus capacity and enough reserve funds to invest, the government should focus on improving infrastructure rather than disinvestment. The government move to disinvest profitable companies, in fact, jeopardises all future earnings of these companies. Also, the assets of these companies do not reflect their true worth. For instance, some of them have received subsidised land from the State governments whose market worth has substantially appreciated.”
He gave examples to prove the efficiency of the public sector: “Bharat Heavy Electricals Limited (BHEL) has perfected the technology of using high ash coal. Most of the coal available in India is high ash coal and this special technology is required for burning it.”
Trade unions’ oppositionA number of labour unions have also opposed the government’s move to disinvest its stake in CIL. A group of five central trade unions, including the Bharatiya Janata Party (BJP)-backed Bharatiya Mazdoor Sangh, have opposed the government move.
Speaking to Frontline, D.D. Ramanandan, a national secretary of the Centre of Indian Trade Unions (CITU), said: “All the unions are unanimous in their opposition as this is a move towards step-by-step privatisation of a natural resource. Besides, the move towards privatisation will also undo all the benefits that have accrued to labourers working in the coal sector as a result of nationalisation. The working conditions, social welfare benefits and the salary of the workers in coal mines have improved substantially after nationalisation. The privatisation move is only going to undo these benefits. The government can focus on improving infrastructure facilities such as making a dedicated coal corridor with railway connections through Jharkhand, Odisha and Chhattisgarh for efficient transportation of coal. One major problem facing both CIL and its subsidiary companies at present is their inability to transport coal from the pitheads.”
The proposed sale of the government’s stake in the NHPC Ltd has also raised apprehensions about the impact of unbridled privatisation in the realm of hydroelectric power projects. Prabir Purkayastha said: “The diminishing importance of NHPC will only ensure that the rivers are virtually given over to private players who do not take adequate measures to preserve ecological balance in projects. The NHPC as a public entity is expected to act as a nodal agency to balance requirements of hydel power generation and ecological concerns.”
Another startling move by the government has been the decision to give the go-ahead to a 29.5 per cent disinvestment in HZL despite the fact that a Central Bureau of Investigation (CBI) inquiry has been initiated into the earlier disinvestment carried out by the previous NDA regime.
The Metal Corporation of India Ltd, a public limited company, was incorporated in 1944 and was the sole producer of lead and zinc. Given the utility of zinc in sectors such as energy, transport, space programmes, and water supply, Parliament enacted the Metal Corporation of India (Acquisition of Undertaking) Act, 1966, to acquire this company. The move to nationalise this company was to ensure that a scarce natural resource could be utilised for the good of the larger public.
Subsequently, the moves aimed at the gradual disinvestment of this public sector entity have only defeated this purpose. In December 2000, the then NDA government announced its intention to disinvest 26 per cent of the government’s stake in HZL to a strategic partner through competitive bidding. Later, the NDA government announced that Sterlite Opportunities and Ventures Ltd (SOVL) had been chosen as the strategic partner for disinvestment. Further, in 2003, SOVL, under the shareholder agreement of 2002, acquired a further 18.92 per cent shareholding as a result of which the company held 64.92 per cent shares in HZL.
Legal ChallengesIn 2003, the Supreme Court admitted a number of petitions challenging the decision of the NDA government in disinvestment. In 2012, the UPA government decided to further disinvest a 29.35 per cent shareholding in HZL. In 2013, the CBI initiated a preliminary inquiry into the sale of HZL to SOVL and into suspected irregularities in the disinvestment and the role of the officials. Despite the ongoing CBI investigation, the NDA government announced its intention in January 2014 to disinvest 29.35 per cent of its residual shareholding in HZL.
A petition filed by the National Confederation of Officers Association questioning the decision of the government to disinvest its shareholding is being heard by the Supreme Court.
Speaking to Frontline, C.P. Babel, a retired administrative officer of HZL, and one of the petitioners in the Supreme Court, said: “A move for allowing further disinvestment in HZL is totally irrational and illegal and also in contravention of the Metal Corporation of India (Acquisition of Undertaking) Act, 1966, and the Metal Corporation (Nationalisation and Miscellaneous Provisions) Act), 1976. HZL was created by incorporating the erstwhile Metal Corporation of India Limited as a public sector company in 1966. Since the company came into existence through parliamentary legislation, any disinvestment of the government’s shareholding cannot be done without seeking the mandate of Parliament and by amending these Acts.”
The petitioners also allege that the government has fixed the reserve, or the base price, for the e-auction of the stake at a very low amount of Rs. 11,000 crore. HZL has a reserve liquidity of Rs. 23,632 crore as of September 2013. The petitioners allege that the government has not factored in the various leases granted to the company for raw materials which are available for the next 30 years.
In fact, it is important to note in this context that in February 2012, in response to a Right to Information (RTI) query, a copy of which is available with Frontline, the Ministry of Mines said that the Department of Legal Affairs had stated that the disinvestment of more than 50 per cent of the shares of HZL, which would change it from a public company to an ordinary company, was not permissible in the light of the provisions contained in the Metal Corporation (Nationalisation and Miscellaneous Provisions) Act, 1976, and the judgment of the Supreme Court in Centre for Public Interest Litigation vs Union of India in 2003. In that case, the Supreme Court had ruled that the government could not exercise its executive powers to disinvest two public sector companies, Hindustan Petroleum Corporation Limited (HPCL) and Bharat Petroleum Corporation Limited (BPCL), without repealing or amending the law. This judgment was in response to petitions challenging the disinvestment of these entities without amending the appropriate statutes suitably.
The case of HZL illustrates the zeal with which the government has embarked on the project of disinvesting natural resources even while the legality of similar policy decisions in the past is under the scanner of investigating agencies and the judiciary.