Chronicle of a scandal foretold

Stupid or deliberate, decisions on many PSUs are lowering their sale value

ALL those accusing the government of corruption while privatising PSUs are essentially making two points. One, the government’s actions (such as, for instance, delaying MTNL’s foray into the cellular market) are deliberately lowering PSU profitability, and therefore the value got from its sale. Second, this is done so the ministers/bureaucrats involved in the exercise can get a payoff. Supporters of the government, in turn, argue that since it is never possible to collect a payoff — how can you since there are so many bidders? — there’s no question of a deliberate motive to lower PSU profits.

Let’s deal with the possibility of collecting payoffs first. The best example of this is the Air India sale — I’d like to underline the point that this is purely a theoretical example, and no motives are being ascribed to any of the players in the exercise. Bids of some players have already been rejected by the government on security grounds — one or two of the airlines, they alleged, had ISI-Dawood links. Let’s believe this, as we’ve no way of knowing if it is false. After this, there were just two players left — the Tatas and the Hindujas.

Now what was being sought to be done was eliminating the Hindujas because of their alleged Bofors link, and make the Tatas the sole bidders for Air India. But, as Samajwadi Party MP Amar Singh pointed out, the Tatas are also accused, and in a more serious case — that of funding the ULFA militants in Assam, so why weren’t they being eliminated?

Fortunately, since the Hindujas made a very public furore, the government dropped the move, but the episode shows it is possible to ensure that a preferred company emerges as the front-runner. Now that it’s been demonstrated (I hope sufficiently) that a payoff is possible, let’s move to the story of what the government is doing to reduce the valuation of VSNL.

Monopoly Over Profits: This is really the most serious of the charges. VSNL has a monopoly over all international telecom traffic into and out of India, and so earns huge profits from this. As part of its WTO commitments, however, the government had promised it would review it by March 2004 — last year, however, the government announced the monopoly would end by March 2002. Why? No one really knows, since the country got no special concession from other countries for doing this.

The argument, however, was that this was done so that call rates fell, as this would benefit users. Since this lowered VSNL’s value, the government gave VSNL some concessions adding up to around Rs 500-600 crore (I think it was too little — SingTel got $1.2 billion when its monopoly was broken — but let’s forget this as well).

So when anyone bids for VSNL, this will be based on the premise that its days of monopoly-profit will finish in March 2002. Well, the fact is that the government has so far not even asked the telecom regulator, the TRAI, to form the rules for international long distance calls — anyone familiar with the process of the TRAI knows it takes two-three months for it to come up with a consultation paper, an equivalent period for public hearings and replies, then a few months for a proposal to be formulated and the government to accept it, and so on... all told, and including the time taken to set up a new network, VSNL’s monopoly is likely to be in place till March 2003. So, a bidder will bid on the assumption that VSNL’s monopoly profits are over, but will get to enjoy these for a full year or so extra.

This Is Your Cell: It’s well known that the fastest growing and most lucrative market these days is the cellular one. Guess what? The government is not allowing VSNL to participate in what’s in all probability the last chance to get cellular licenses in India, on the grounds that it is a government-owned company, and you can’t have two firms owned by the same entity offering the same services — so it’s either them or MTNL, or BSNL. That’s a specious argument. For one, VSNL and MTNL both offer Internet services — so how’s that possible? Second, since VSNL will be privatised soon, why not wait till it is privatised so that the new owner can bid for cellular services? Without cellular licenses, VSNL’s value falls.

Long Distance Murder: One of the sops VSNL got for the loss of the international monopoly was that it wouldn’t have to pay the entry fee for national long distance telephony and would be exempted from license fee for some years. Well guess what our political masters were getting VSNL to agree to just a few months back — VSNL was planning to lease out optical fibre from a private firm at a per annum fee that was higher than the cost of laying it themselves, and would have spent a few thousand crore rupees on this! No tender, nothing. Finally, the independent directors on VSNL’s board protested, and the proposal was dropped.

Whom do you blame for all this — the parent ministries or the disinvestment one? Ask telecom chief Ram Vilas Paswan and he’ll say his job is to provide economical telecom services, not maximise VSNL’s value; privatisation chief Arun Shourie’ll say his job is not to monitor PSUs, but just to sell them. Well unless we figure out whose job is what, we’ll see our top PSUs being sold for a pittance.

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