Modi's MTNL test PDF Print E-mail
Tuesday, 22 April 2014 01:03
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Only radical restructuring can make the PSU viable

If Narendra Modi is to be PM, it is clear PSU privatisation is not going to be top on his agenda. As he repeated in his CNBC Awaaz interview last week, his focus will be professionalising PSUs. He gave several examples of PSUs in Gujarat that had been turned around, topping which was the Gujarat State Electricity Board. Modi is obviously right in that PSUs need to be given a chance to prove their mettle and, were he to become PM, he is essentially promising that PSUs will take their own decisions. So, one minister, or a small group, will not force an Air India to buy $11 billion worth of aircraft when it has no hope of being able to service the debt; nor will an MTNL or a BSNL be forced to buy 3G/BWA spectrum at an undisclosed price—to be decided a year later, in an auction—when their boards have not even done a cost-benefit analysis. Most important, if Modi needs to ensure PSUs get a level playing field, he has to free them of L1-itis, the necessity that a tender has to be floated for almost anything, and that a losing party can go to court and simply block expansion for years using the allegation that the tender is flawed. BSNL’s loss in market leadership—not profits—can be traced, almost to the day when, thanks to the losing vendors approaching the courts, it was not able to create enough capacity, as a result of which the Bhartis and the Vodafones got all new rural demand. This will be Modi’s biggest challenge, to find a way not just to free PSUs from his cabinet colleagues, but to give them operational freedom.

It would, however, be naive to think Modi’s view of PSUs is to give them unlimited dole. In the case of the Gujarat electricity board, the professionalisation was accompanied by realism, and farmers were—to their initial horror—charged for the electricity being supplied to them. It is this realism that, presumably, will inform how Modi tackles PSUs. MTNL, for instance, cannot become profitable without radical surgery. Its wage bill is more than its turnover while the comparable number for a Bharti Airtel is just 5%. Increasing the topline is vital, but there aren’t enough Indians to raise it 20 times over—MTNL’s subscriber base of 3.5 million hasn’t changed since FY09, but sales fell a third by FY13, as a result of which FY09’s profit of R212 crore converted to a loss of R5,321 crore in FY13. So Modi’s solutions have to revolve around coming out with rules on spectrum sharing/trading that allow MTNL’s topline to get a big upside from its large spectrum holdings while, at the same time, trimming staff. Realism will mean forcing BSNL and MTNL to open up their copper wires going into subscriber homes to private firms—if need be—so that the voice lines can be converted into broadband ones. The reason why the NDA preferred privatisation was that getting PSUs to change has proven impossible. The combination of assured business—the CAG once said bilaterals should be reserved for Air India—assured jobs and L1-itis, apart from political interference, have made PSUs pretty much useless. Also, professionalising a Coal India does not mean the coal sector has to be held ransom to it—there is no contradiction between opening up the sector to private firms and professionalising a PSU. Both Coal India and the country will benefit from the competition.


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