OCTOBER 12, 2003
 Cover Story
 Personal Finance
 Back of the Book

Kashmir On The Map
After a succession of false starts, this might actually be something worth taking note of. The World Travel and Tourism Council has joined hands with the Jammu & Kashmir government to promote the state as an international tourist destination for just about anybody who appreciates natural beauty. The plan.

Cancun Round-Up
The drumbeats on the way to Mexico were low-key, but audible enough. Now that the World Trade Organisation is back in pow-wow mode and India has attained some clarity on what the country's trade agenda is, it's time to do a quick round-up of the Cancun meet.

More Net Specials
Business Today,  September 28, 2003
Divestment Dead-end
Selling PSUs will now get infinitely more complex.
Oil sell-offs: Running out of gas

On paper, it's just a technicality. But in effect, it could sound the death knell for disinvestment in the country. On September 16, 2003, a two-member bench of the Supreme Court delivered a 21-page verdict directing the government to seek parliamentary approval before disinvesting its stakes in oil companies HPCL and BPCL. The judgement, delivered in response to a public interest litigation filed by the Centre for Public Interest Litigation and Oil Sector Officers Association for stalling the sale of the two companies, cited Section 7 of the Esso (Acquisition of Undertaking in India) Act 1974 and similar sections of the Acts of 1976 and 1977, under which the government acquired the assets of Esso Standard, Burmah Shell, and Caltex. According to the relevant provisions, the government can transfer the acquired oil undertakings only to those entities where it has a minimum 51 per cent stake. Since disinvestment transfers the ownership to a strategic partner (in the case of HPCL) and the public (in the case of BPCL), a parliamentary amendment to the acts would be needed for their sale.

"Anything Is Possible In This Country"
"I am Neither Happy Nor Sad"
Naidu's Chequered Gambit
The Anatomy Of Indian Investors

The judgement has a far-reaching impact on the whole process of disinvestment. On the one hand, the government is now obliged to seek approval from both houses of the Parliament for the sale of everything from its banks to coal companies, financial institutions to insurance companies. On the other hand, the court ruling could potentially call into question all the 47 PSUs sold beginning 1991, including the sale of Maruti Udyog to Suzuki. All it will take is another PIL. While a leading Delhi-based lawyer is of the opinion that the court ruling is only prospective, disinvestment minister Arun Shourie reads significantly more into it. He thinks that not just outright sale but also ADRs and GDRs of PSU companies will now be open to question. Says an investment banker: ''India's privatisation process has just walked into a legal minefield.''

On December 3, 2003, the Disinvestment Ministry is to place an "Options Paper" before the Cabinet Committee for Disinvestment. Thereafter, the government will decide on a course of action, key among which will be a Parliamentary amendment to the Esso Act. The hitch: the opposition Congress has the majority in Rajya Sabha, and should it decide to oppose the amendment, disinvestment will come to an abrupt halt and with it the government's hopes of raising Rs 13,200 crore from the process this year. At least until December-and possibly for several months thereafter-all disinvestment, HPCL and BPCL included, will hang in limbo.

''Anything Is Possible In This Country''

What Arun Shourie has to say about the Supreme Court's order restraining the disinvestment of HPCL and BPCL.

What was your first reaction?

I was a little surprised because we were not expecting something like this. We had meticulously studied all the legal implications regarding the disinvestment of HPCL and BPCL, looked closely at the Banking Companies (Acquisition & Transfer of Undertakings) Act as well as the Coal Mines Nationalisation Act. We had also sought the advice of the Attorney-General, Soli Sorabjee as well as the Law Ministry.

What does this mean for the Disinvestment Ministry?

The order means a major setback for us. We have immediately stopped all work including due diligence of these companies, which was in an advanced stage. We have to see whether companies like Shipping Corporation of India, Warehousing Corporation of India can be sold because they too were created by an Act of Parliament.

Do you feel let-down?

Personally, I have become quite detached.

What next?

We will present a list of options open before the Disinvestment Ministry for the privatisation of HPCL and BPCL during the next meeting of the Cabinet Committee on Disinvestment on October 3.

Won't this delay affect the valuations of these oil majors?

Of course, yes. The delay in the disinvestment of Videsh Sanchar Nigam Limited (VSNL) and Maruti Udyog Limited (MUL) adversely affected their valuations. I see a similar trend happening in the case of HPCL and BPCL.

Many experts believe that the disinvestment of Maruti can be challenged because it was created by an enactment.

Anything is possible in this country. We can only keep our fingers crossed.

(Shourie spoke to BT's on September 18, 2003.)

"I am Neither Happy Nor Sad''

What Ram Naik has to say about the Supreme Court's order restraining the disinvestment of HPCL and BPCL.

What was your first reaction?

I am neither happy nor sad with the recent judgement of the Supreme Court. I still believe that it is a historic judgement. It is true that I had opposed the disinvestment of HPCL and BPCL, but once the Cabinet took a decision to this effect on January 26, I have never said a word until September 15. At least, you have to give me credit for being bound by the decision of the Cabinet.

Do you still view oil as strategic industry, whose control must always remain with the government?

No, the government is of the opinion that there are only three strategic industries in the country today. These are defence, atomic energy, and railways, not oil.

What next?

We have not concretised any plan yet.

Do you plan to effect an ordinance speeding up the disinvestment of HPCL and BPCL?

There are no such plans.

Won't this affect the disinvestments of other oil PSUs?

There are really no PSUs up for disinvestment right now. We have already made it clear that Indian Oil Corporation (IOC) in the refining sector, the Oil and Natural Gas Corporation (ONGC) in the exploration and production sector, and the Gas Authority of India (GAIL) in gas sector are flagship companies where the government's equity can never fall below 51 per cent.

Naidu's Chequered Gambit
AP's dynamic CEO now wants an F1 race in Hyderabad.

CM #1: His sights are set on F1 now

Sachin Tendulkar was gifted a Ferrari (yes, that Ferrari!) by F1 world champion Michael Schumacher when he went to watch a Formula One race. All Andhra Pradesh Chief Minister Chandrababu Naidu could manage was a handshake (and a photo op) with Michael Schumacher's physio. Fine, Schumi's physio is an Indian called Balbir Singh who traces his lineage to somewhere in North India. That is India's sole connection to F1 right now. True, Narain Karthikeyan has made a beginning of sorts by testing out a F1 car, but he is already 27 and the chances of him becoming a true-blue F1 jock seem remote; the distinction of being the first Indian to do so will probably belong to one of the kids he's influenced the take up the sport.

Naidu believes that a cm should sell his state as a destination for all kinds of things. First it was it; then it was BT (biotech, not Business Today); still later, it was insurance. Now, the man's overriding obsession is to put Hyderabad on the F1 circuit by 2006. Here's what that will take.

The circuit: Building this will be the easy part. It will cost Rs 500 crore to build and that magnitude of money is easily raised.

The audience: F1 has been losing fans over the years. The recent Hungarian and German Grand Prixs witnessed stands that were half-empty. Even the Malaysian GP, the race closest home and the one to which hardcore Indian fans fly down every year, played out before sparse stands. That may have been because it clashed with the final of the Cricket World Cup, but fact is, in India, F1 has a following restricted to a niche of a few thousand people. Given that F1 boss Bernie Eccelstone divides the money from TV rights between his various companies, the Federation International De L'Automobile (FIA) and the teams, racetracks have to make money by filling up the stands. The average grandstand seats 50,000.

The sponsors: F1 thrives on tobacco sponsorship; the Ferrari team, for instance, is sponsored by Marlboro. Stringent tobacco sponsorship laws have already scuttled the Canadian GP. China and Bahrain, which will host F1 races in 2004, have no such laws. India, surprisingly, was one of the first countries in the world to enact such a law. Most teams have promised to find alternate sponsors by 2007, but this is likely to be a promise that is stretched, if not altogether broken. Naidu may usually get his way but it is unlikely that he can get the Central Government to amend this law.

The infrastructure: F1 is not just about the circuit, it also about the associated infrastructure. F1 teams usually move around in five, six, even seven cargo 747s. With Hyderabad's Begumpet airport bang in the middle of the city, there seems little chance of expanding it. Of course, the city could get a new airport by 2006.

Lest we forget, F1's Tiger Woods, the man who has made the sport popular, Schumi, retires in 2005. We'd really love F1 to come to India, but Hyderabad? Give us a break!

The Anatomy Of Indian Investors

21 million: Number of investors who invested in equity and debentures in 2000-01

5.5 million: The fall in the number of households invested in equity from 1998-99 (12.1 million) to 2000-01 (6.6 million)

5.9 million: The increase in the number of households invested in debentures from 1998-99 (3.7 million) to 2000-01 (9.6 million)

4 million: The fall in the number of investors invested in mutual funds from 1998-99 (23 million) to 19 million (2000-01)

45 per cent: Share of southern states in number of total investor households

25 per cent: Share of Gujarat in number of households investing in equity.
Source: Recent survey by SEBI-NCAER