Loss making companies should be sold to prevent further losses

''Loss-Making Companies Should Be Sold To Prevent Further Losses''

At first glance, Union Minister of Petroleum and Natural Gas, Ram Naik, 66, doesn't look like someone who can take a stand and stick to it. But this soft-spoken, unassuming man is no pushover. Ask Finance Minister Yashwant Sinha and Disinvestment Minister Arun Jaitley. For, Naik could well be the man who derails their plans for big-ticket privatisation, as he firmly believes that the government should retain its control over the cash-rich oil companies. In an interview with BT's Ashish Gupta and Seetha, Naik gives arguments to support his stand.

Q. What are your views on disinvestment especially in the cash-rich oil Public Sector Units (PSUs)?

A. The Prime Minister had appointed a committee of five ministers, under the Chairmanship of Finance Minister Yashwant Sinha. This committee was asked to formulate a policy for the oil sector for the next 25 Years. And in the process, it came out with a report titled India Hydrocarbon Vision: 2025. The committee felt that in the short-term, stand-alone refineries like Chennai Refinery, Kochi Refinery, and Numaligarh Refinery, should be restructured. They should either be made subsidiaries or merged with the bigger marketing companies like Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Limited (HPCL), and Bharat Petroleum limited (BPCL). By the end of this year we hope to concretise some of the proposals.

Q. So you are not in favour of disinvestment of oil companies before restructuring?

A. No, that is what the report recommended. The committee felt that in order to get a better value for the marketing companies at the time of disinvestment, there should be restructuring first.

Q. Why can't the two things be done simultaneously?

A. Because the intrinsic value of the marketing companies will increase substantially when the stand-alone refineries are merged with them.

Q. You have said that the oil sector is a strategic sector, and that it should remain under government control. But in many developed countries the oil sector is in the private sector. And they have not faced any problems.

A. I am not saying that private players will not be allowed into the sector. There should be healthy competition between Indian companies, and foreign players. But the oil sector should be treated as a strategic industry like the railways, defence installations, and atomic energy. Giving up these companies to the private sector will not be a right thing to do. We have neighbours like Pakistan with whom we have already had four conflicts. We should not forget that private oil companies in India were nationalised because they did not co-operate during the 1971 war with Pakistan. The US and the UK do not have that kind of problem.

Q. Can't this problem be resolved by imposing certain conditions on the private players?

A. It is not as simple as that. What will happen if the private players refuse to accept your conditions? We must have an assured supply of oil. Imagine what would have happened if the oil stocks had failed to reach Kargil during the war. The movements of the army vehicles would have come to a grinding halt as a result.

Q. So you want the government to have majority stake in the oil companies?

A. I want the government to have a majority holding in the oil companies because they take care of the country's defence needs. The government should not forget that the country has sensitive borders.

Q. Are you against offloading even a small percentage of government equity in these profit making companies?

A. No, I am not saying that. When it comes to disinvestment of oil PSUs each unit will be treated on its merit.

Q. Why was the disinvestment process in Indian Oil deferred?

A. Disinvesting 10 per cent of the government stake in Indian Oil was part of the disinvestment plan of 1999-2000. But the scrip did not get a favourable price. Besides, we realise that we have time till 2002 to dismantle the administrative price mechanism. The share price of marketing companies should go up by then.

Q. But by not allowing the disinvestment of the oil PSUs aren't you making it difficult for the Finance Minister to meet his budget target of Rs 10,000 crore?

A. I don't think so. The budget target can be achieved by allowing the marketing companies to buy into the stand-alone refineries. For instance, if we allow the merger of Chennai Refineries with Indian Oil or allow Indian Oil to buy a certain stake in the stand-alone refineries, the government can earn a lot.

Q. But that only means transferring government money from one PSU to another.

A. I agree, but what I am interested in is protecting the stand-alone refineries which will find it difficult to survive once the Administrative Price Mechanism is dismantled in 2002.

Q. You must have some idea about which oil companies need to be disinvested?

A. Since the disinvestment programme for 2000-2001 has not been finalised, I will put my views before the Cabinet only--and not outside. The Finance Minister has made it clear that disinvestment will be a priority in those PSUs which are running in losses. The Petroleum Ministry has 14 PSUs under its wing, of which five are 'navaratnas', seven are 'miniratnas', one is earning profits, and the last--the Numaligarh refinery--has just started production.

The government is getting huge dividends on its equity. So where is the need to disinvest in these companies.

Q. Why should anyone invest in a loss-making company?

A. Tell me why should I sell a company which is giving me profits? Loss-making companies should be sold to prevent further losses , besides the new management can turn these companies around by infusing additional funds.

Q. You are not in favour of disinvesting in Engineers India. Why?

A. Yes, Engineers India also has strategic importance because of its expertise in deep sea exploration of oil. Why should we hand it over to some private players?

Q. Even if you privatise Engineers India, it will still have these capabilities.

A. And if it has such capabilities why should we throw it away? Especially because they are giving more profits than their share capital. At the same time, we are not preventing other private players from coming into the sector.

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