Odd to sell Air India but create larger PSUs too PDF Print E-mail
Tuesday, 04 July 2017 04:42
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Oilmin introspects on ONGC-HPCL, and talks of 'danger of ... sub-optimal investment' in the case of ONGC-GSPC


Since the government appears to have crossed the ideological hump when it comes to taking a decision on privatising PSUs, perhaps the decision on Air India will spur it to take similar decisions on other white elephants. Telecom PSUs MTNL and BSNL, needless to say, top this list. Both are steadily losing market share—BSNL is down from 16.3% of the mobile market a decade ago to 8.7% today and MTNL from 1.43% to 0.3%—and, like Air India, have almost no chance of survival. Against an industry wage-to-revenue norm of 5%, that for MTNL is 75% and that for BSNL is 41%! Despite all the talk of the halving of BSNL’s losses from Rs 8,234 crore in FY15 to Rs 3,880 crore in FY16, Rs 3,066 crore of this was due to an increase in other income and a Rs 1,682 crore reduction in depreciation—take this out and there is just a minor bump-up with operational revenues growing 4.4% versus pre-depreciation expenditure rising 3.2%. Also, in the case of MTNL whose spectrum licence expires in two years, buying even the bare minimum spectrum will cost over `3,900 crore—who will fund this?

And while there was a 5% revenue growth and 31% profit growth for 36 non-bank PSUs in FY17, much of the better performance comes from sectors in which PSUs are either monopolists or, like ONGC, got the best acreages/plants. Which is why, in the case of PSU banks, market capitalisation fell from 54% of that for all banks in May 2009 when UPA-2 took charge, to 43% in May 2014 when Modi came in, to 31% in May 2017; in the case of non-banks, it fell from 31% to 22% to 16%, respectively.

Given this, it is especially odd to see the petroleum ministry pushing for an ONGC-HPCL alliance since, apart from the disparate cultures of the two PSUs, what is needed is more competition in the petroleum retail market, not less—privatisation of HPCL would go a long way in making the market more competitive while the government would still control over three fourths of the market. Interesting, in this context, is a note by the petroleum ministry that was circulated amongst all ministries. While talking of the benefits of the HPCL-ONGC merger, it says this could dampen competition. Though ONGC buying HPCL, it says, will take care of the problem their different cultures would create in the case of a merger, ONGC will have to pay Rs 30,000 crore to the government to buy its HPCL stake and another Rs 15,000 crore for an open offer—this, the note says, “will likely require it to borrow to finance the deal and could reduce its capacity for asset acquisition, at least in the near future”. The note also talks of the recent ONGC-GSPC deal—it describes GSPC’s asset as ‘not-so-successful’—by saying “there is also the danger of the government nudging PSU companies to make sub-optimal investments”. While it is not clear if this means the ONGC-GSPC or the ONGC-HPCL deal will be re-evaluated, the larger question is why, in a liberalised atmosphere where PSUs are to be given a free hand, if not divested, line ministries continue to call the shots and dictate investment decisions to what seem pliable boards. If the Air India decision is signalling the government moving in a certain direction, the action on other PSUs is signalling the opposite.


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