Will govt back off on stake sale?
Given how investors, particularly global ones, have been waiting for the schedule of the PSU divestment, the Cabinet has done well to finally clear this. According to the schedule cleared, 5% of ONGC’s shares are to be sold, along with 10 % of Coal India and 11 % of NHPC—based on current prices, this alone should fetch the government R44,029 crore as compared to the target of R43,425 crore. In addition, another R58,425 crore is to be got from the sale of the government’s residual stake in erstwhile PSUs like HZL and Balco. Part of the reason for the delay in clearing the sales—bunching them can theoretically lower investor appetite—is presumably the government wanting more clarity on issues like the subsidy burden on an ONGC. Various formulas have been suggested and the lower the subsidy overhang, the higher the price that can be got from the stake sale. Indeed, were a quick decision to be taken on gas pricing, this would also help—of course, the presumption is that any price hike would apply to all gas production and not just to new finds. If the latter is to be done, it will probably hit ONGC’s shares which have undoubtedly factored in a price hike for all gas production.
The government’s biggest test, of course, will be the 10% stake sale in Coal India, reckoned to fetch R22,780 crore. Having got the previous government to back off from the sale on threat of a strike, Coal India’s unions are flexing their muscles again and are meeting on September 21 to decide on the matter. Apart from stopping the stake sale, the unions also want that the coal mines, whose licences the Supreme Court is likely to cancel, be given back to Coal India. How the government tackles this will be its first big test. If it reassigns all cancelled coal blocks to Coal India, this will mean increasing the PSUs ransom power since there will now be no possibility of getting extra coal supplies other than from Coal India. In an ideal situation, in fact, coal and other mining should be opened up to commercial miners—Coal India’s unions should be happy that this has been put off for now. In this context, the Attorney General’s statement to the SC, that these mines could even be given back to Coal India was probably ill-conceived. As for the stake sale, this is in keeping with the government’s stated policies on all PSUs, and there is no reason why Coal India should be any different. The government needs to be ready to play hardball—if it backs down like the UPA did, its ability to take other tough decisions will be severely compromised. The fact that CIL figures in the list of PSUs in which shares are to be divested suggests the government is ready to do what it takes.