Opening decade-old PSU sales is a very bad idea
Given it was the NDA that privatised both Hindustan Zinc Ltd (HZL) and Balco, chances are the current set of bureaucrats may not be too anxious to defend the CBI investigation into the HZL sale in 2002. But tempting as it might be to allow the officers involved then to face the CBI—the agency has asked for details of all the officers—the government has to keep in mind it has R16,500 crore riding on it convincing the CBI there was no mala fide and then convincing Parliament to allow it to sell its residual 30% stake in the company. The facts of the case are simple, but they tell a chilling story of how government functions, of how delays are of little consequence, and what matters most is adherence to a rule that probably makes little sense anyway.
The case has two main facets, and one subsidiary one. While the NDA privatised HZL in 2002, a complaint filed said it had not taken Parliament’s assent, vital for firms like HZL/HPCL/BPCL that were created by an Act of Parliament. Problem is the Supreme Court ruling on this, in the HPCL/BPCL case, came after the HZL case, so it isn’t really relevant at all. Two, while the complainant says there are discrepancies in HZL’s valuation, the point to keep in mind is the PSU was sold in an auction, not on the basis of that valuation which was really done just to reject bids if they were too low. Even more important is the dramatic 101-fold hike in HZL’s profits in the 11 years since it was sold and the 78-fold hike in its market cap that takes the government’s R536 crore pre-privatisation stake to R16,500 crore today—and that’s when its shareholding is down from 76% to under 30% now. During this period, investment levels in the erstwhile PSU have risen from minus R3 crore in FY02 to R3,200 crore in FY13. Since it is unlikely any of this would have been possible had HZL remained a PSU, this is what the government needs to tell both the CBI and Parliament—the first, to get rid of the case; the second, to be able to sell its residual stake.
More worrying is the manner in which the government has treated a company that has put in so much effort and raised zinc production many times over and contributed handsomely to the exchequer by way of corporate taxes. The NDA offered Sterlite call options which, at that time, didn’t amount to much given the pre-privatisation HZL market cap was a mere R705 crore. While Sterlite exercised one option, the second one was turned down by the UPA which had by then formed the government. This was in 2009. Sterlite challenged the UPA’s view that options were not valid under the law but though arbitrations are supposed to be a quick solution to dispute, the case is still being heard. Not surprising then that investors are increasingly turning wary.