Disinvestment: Disinvestment's Daring Duo

DISINVESTMENT
Disinvestment's Daring Duo

With a mixture of reason, diplomacy, political savvy, and plain pugnaciousness, Disinvestment Minister Arun Shourie and Disinvestment Secretary Pradeep Baijal have set out to meet the ambitious target of netting the GoI Rs 80,000 crore in the next six years by privatising PSEs. A point-in-time excerpt from a work-in-progress.

By Seetha

Shourie (L) and Baijal: Perfect mix of reason and diplomacy

Secretaries to the government of India are not known to yell -especially at other secretaries. If stories doing the rounds of bureaucratic circles are to be believed, that's not true of Pradip Baijal, the feisty, tough-talking secretary of the Ministry of Disinvestment. There is this purely apocryphal tale about how the 58-year- old lost his temper with one secretary. ''I had asked you for this clarification, but you haven't replied. My minister and the PMO (Prime Minister's Office) are screaming at me. Now, you answer them.''

The minister referred to in that fit is the 60-year-old Arun Shourie who, in a strange twist to the stereotypes of Yes Minister's James Hacker and Humphrey Appleby, apparently serves as a sobering influence on his secretary. Together, disinvestment's daring duo have set out to meet the Planning Commission's ambitious target of raising Rs 80,000 crore by privatising public sector undertakings (PSUs) in the next six years.

It won't be easy. In the 14 months he's been on the job, Shourie and his team of 14 have managed to complete the privatisation of Balco, CMC, Hindustan Teleprinters, and some properties of the Hotel Corporation of India. And while Hindustan Zinc remains unsold-the single bid for the blue-chip company was below the reserve price-and three of the eight ITDC hotels put up for sale have found no takers, the ministry has done enough to show that India's privatisation bus is on the move. Along the way, Shourie's D-company has had to battle with a socialist mindset, wrestle with political opposition, deal with lobbying by business groups, tolerate allegations on their personal integrity or lack of it, even overcome non-cooperation from the administrative ministries and the PSUs up for privatisation. Then, there are things like the chicken.

Soundbytes From Shourie
Extracts from an interview

POLITICAL OPPOSITION: If the political class is determined to harm the economy, what can anybody do? We are doing as completely open and objective a job as is possible. If others are determined to obstruct it, that is what India is.
LESSONS FROM BALCO: The government should be communicating much more, using Doordarshan and air much more systematically. My main point to the government has been that in all these changes, you have to ride through these squalls. And each of these squalls will strengthen these processes in the end.
MEETING INDUSTRIALISTS: Each time any of these big or bright industrialists come, they have to pay tax in the form of one bright idea. One of Anil Ambani's suggestions was on finalising the reserve price. He also came up with an interesting concept about Maruti-the American shoot-out. In this, you name a price at which you are prepared to buy Suzuki's shares and at which you are prepared to sell your own shares to Suzuki. Same price. Similarly, Suzuki would do the same. It's a nice little concept. It ensures fairness.

When I had gone to New York to attend the UN General Assembly, the New York Stock Exchange (NYSE) people invited me for breakfast. One of the points they made was that NALCO, unlike Balco, is a well-managed company and could be quickly listed on the NYSE and would fetch an attractive price at this time. This was before September 11. And when I came back and examined this suggestion, it turned out to be a good suggestion in regard to NALCO specifically.

Three days after bids were invited for ITDC, Shourie received an unsettling call. At an ITDC-creditor meeting that morning, a creditor had claimed the sale couldn't proceed till his dues-all of Rs 2 lakh for supplying chicken-were cleared. The minister immediately buzzed his predecessor at the ministry and legal troubleshooter, Law, Justice, and Company Affairs Minister Arun Jaitely who sorted things out. ''It is ridiculous,'' says Shourie, at once angry and amused, ''that the goal of the Government of India be contingent on a chicken-supplier who hasn't been paid.''

''It's a very difficult job,'' admits Baijal, who finally got to put into practice the concepts he learned while studying privatisation during a one-year visiting fellowship to Oxford University in 1987-88.

Squelching The Opposition

When Shourie inherited the hot seat in September 2000, political opposition to disinvestment was still strong. The Congress and the Left were on a rampage and there was resistance to the process even within the Bharatiya Janata Party (BJP) and the ruling National Democratic Alliance (NDA) coalition.

Taking a cue from his predecessor, Shourie bombarded the skeptics with data to show the sorry state of public sector enterprises. The high-on-nervous-energy minister is at home with numbers and other trivia, perhaps a result of his background as a journalist. Proving the point, he throws a clutch of numbers at this writer. ''Do you know there have been 10 debates on disinvestment in the last one-and-a-half years, taking up around 75-80 hours of Parliament time and that we have answered 520 questions since Budget 2000?''

Baijal has also picked up the habit. In October, at a meeting with trade union leaders, he blitzed them with details on the number of workers retrenched in China post the privatisation of state-owned corporations. Then he pointed out that not one person had been retrenched following the privatisation of Balco and Modern Foods. Punchline: ''Are we the last bastion of Communism in the world?''

But there's more to selling a cause than numbers. So, Shourie spent considerable time in track-two diplomacy, meeting with opposition leaders at every available opportunity. And within the government, the backing of the PMO, Finance Minister Yashwant Sinha, Home Minister L.K. Advani and External Affairs Minister Jaswant Singh has helped in tackling troublesome BJP and NDA leaders. A government-insider says Heavy Industries Minister Manohar Joshi proved the most intractable, but that he came around after the BJP appealed to his party leader, Shiv Sena supremo Bal Thackeray. ''The ideological battle has now been won,'' says Jaitley.

Other weapons have been adeptly deployed too. The valuation of companies and the transparency of the process were questioned and there were allegations of sweetheart deals when Balco was sold to Sterlite Industries. That, say senior government sources, upset Shourie a great deal, intolerant as he is of any slur on his personal integrity. Left to himself, he apparently would have cancelled the deal with Sterlite. It took the combined persuasive powers of Baijal, Jaitley and Information Technology Minister Pramod Mahajan to make him change his mind. Shourie, however, makes light of it all now and insists he wasn't unduly disturbed by the controversy. ''Everybody making those allegations was kind enough and careful enough to exempt me.''

But people who've worked with Shourie closely say that since then he's been obsessed with insulating the bidding process from any allegations. The process, in any case, was corruption-proof, with the valuation report (which stays with the global advisor till the last day) and the financial bids being opened within 10 minutes of each other in different rooms. But he was constantly worrying about the possibility of loopholes. The ITDC bidding process, therefore, had some extra safeguards built into it. Since buyers wanted to bid for more than one hotel, it was decided to stagger the process over eight days. When bids for a hotel were opened, the name of the highest bidder was announced right away and the bank guarantees of the others were returned, for use in bidding for other hotels. The final announcement was to be made after the meeting of the Cabinet Committee on Disinvestment. To scotch whispers that the bids were later doctored, each of the bidders was asked to sign on the back of the highest bid, without the price being shown to them! Asserts Naina Lal Kidwai, Vice-Chairman of JM Morgan Stanley, ''The entire process is foolproof. There is no scope for allegation of any sort.''

Planning The Next Move

Post-Balco, Shourie has also done away with the shroud of secrecy that cloaks government dealings and is responsible for much of the rumour-mongering. Much to the discomfiture of the then Civil Aviation Minister Sharad Yadav (widely seen to be against the privatisation of Air India), Shourie invited the media to sit in at a four-hour meeting with the seven AI unions. Yadav did not seem to mind, Shourie insists, and in fact, even endorsed the disinvestment proposal ''many times, many times''. In fact, the disinvestment ministry is now interacting with unions and other affected parties much more than it did during the Balco disinvestment.

Nor is Shourie coy about talking about his meetings with industrialists, taking the sleaze out of corporate lobbying. Letters from members of Parliament never fail to amuse him. ''Some of these letters require such detailed knowledge of accounting that the poor members cannot be writing them. I know them. It is the Indian corporate world that is circulating calumny about its own members.'' He chronicles the saga of one such slander campaign relating to the role of an investment banker in AI disinvestment. ''The handouts would come one day; the next day it (the news) would be in the newspapers; and the third day it would be the basis of comments from high levels in the government.'' Each time he confronted the person making the allegation: this is the handout and you are basing your statement on this. ''That had a salutary effect,'' he grins.

Following Through

Shourie's style has percolated down to his officials. Baijal makes himself readily available to the press, sharing whatever information he can. He's been accused of courting the media, a criticism he brushes off. ''I have to explain issues to the public. I can only do that through the media," he says.

Insulated from wild allegations and their minister backing them to the hilt, Shourie's d-Company-this includes joint secretaries Amitabha Bhattacharya, P.K. Basu and K.K. Gupta-is inching forward. The nitty-gritties of the disinvestment process have proved to be messier than they expected. ''It is only when you commence the privatisation process that you get to see the innards of these institutions,'' says Shourie. Team Shourie discovered lax accounting procedures that resulted in understatement of liabilities and losses, huge outstanding dues, improper lease documents, encroachments on PSU property, unauthorised constructions by the PSUs. And, above all, it was confronted by far-from-helpful bureaucrats in administrative ministries and senior executives of the PSUs.

A sampling: crucial information was held back from global advisors in some cases (the due diligence of Videsh Sanchar Nigam Ltd was completed in one day, forcing a second study to be carried out); and the Ashoka Hotel in New Delhi was locked in a 21-year-long litigation as ITDC and the New Delhi Municipal Committee (NDMC) quarrelled over whether the hotel should pay property tax or a service charge. Repeated requests to resolve the matter were ignored. A tourism ministry official says Shourie lost his shirt at one meeting, immediately called officials of the NDMC and the Delhi Development Authority, organised two meetings and got the matter sorted out. Shourie, who's aghast at the issues he's had to tackle, has asked global advisors to compile all these anecdotes.

The ministry, then, is the ideal place for the pugnacious Baijal, whom Shardul Shroff, Managing Partner, Amarchand & Mangaldass, describes as ''a result, target and deadline-oriented man.'' Ashish Guha, Managing Director of Lazard India and global advisor to the itdc disinvestment, recalls how Baijal would just pick up the phone and sort things out whenever Lazard faced a problem. He's also known to badger secretaries of administrative ministries with little concern for niceties, even going so far as to call the then Petroleum Secretary S. Narayan at midnight in Tokyo to clarify a point on the dismantling of the administered price mechanism (APM) or Civil Aviation Secretary A.H. Jung in Moscow for something else. He's often called abrasive, a charge he denies. ''Unless we persevere and push, the targets will never be met," he says.

To ensure that administrative ministries co-operate, the secretary of each has now been made responsible for adhering to various time-lines. And Baijal has to write his own assessment of joint secretaries of other ministries, which will go into their annual confidential records.

How crucial the co-operation of the administrative ministry is can be gauged from the relatively friction-free disinvestment process of both Balco and Hindustan Zinc. It was, says an investment banker, thanks solely to the then Mines Minister Sunder Lal Patwa, Mines Secretary Deepak Chatterjee and his joint secretaries Aruna Bagchee and S.P. Gupta. The disinvestment ministry has also got unexpected help from some officials in other ministries, who will have to remain unidentified.

Kidwai points out that it is difficult for the disinvestment ministry to drive the process alone since the officials don't understand the nuances of each industry. But Baijal and his team, she says, are doing a valiant job of learning the basics of different industries. Baijal, she says, often threw back facts and figures and quoted privatisation history. ''They are a smart, bright lot. A bunch of real doers.''

Baijal is also emphatic about getting the best price for the government. Those involved with the privatisation of AI recall the bitter, but vain, battle he fought against the airline signing off bilaterals because that was a price-dampener. Earlier, when there was a move to deny Balco the use of its Scope Complex office after privatisation (since the complex houses only PSUs), Baijal got the rule changed as it would have affected Balco's valuation.

People who've watched Shourie and Baijal interact say the minister acts as a kind of devil's advocate to his secretary. And though he seeks and values the bureaucratic inputs Baijal provides, he doesn't rely on that alone. He taps frequently into his old contacts and picks the brains of senior economic journalists. ''It is the training of all of us who have been journalists not to confine ourselves to official sources of information,'' he says with a smile.

But the pressure to perform does tell on their nerves. Baijal occasionally plays a round of golf at the Delhi Golf Club to de-stress. Shourie, for his part, steels his nerves with a 45-minute yoga session each morning. And sometimes, when he wakes up at 2.00 am (because ''I've been hyped up the evening before'') he meditates for a while before going back to sleep. Well, if meditation helps d-Company meet that Rs 80,000-crore target, so be it.

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