Covid-19 impact: Missing disinvestment targets will have consequences

Any slippage in disinvestment numbers combined with other revenue shortfall would mean the govt would have to borrow more in the market.

The economic travails this year will be challenging, and from the economist’s perspective, economic growth and fiscal deficit are the two main challenges. The government had embarked on a very ambitious disinvestment programme for the year of Rs 2.1 trillion. It sounded optimistic as we have never delivered such an amount before. The highest was Rs 1 trillion in FY18. The present programme includes the sale of Air India, Life Insurance Corporation of India (LIC) and Bharat Petroleum Corporation Limited (BPCL), which made this very aggressive target look possible.

For disinvestment to take place, there need to be a good number of buyers as well as valuation. Else, like in the past, divestment becomes an exercise of one public sector undertaking (PSU) buying into another. The challenge today is that the conditions do not look congenial and the market is just too volatile. The stock market has touched a new low post the announcement of a shutdown. There seems to be no sign of the shutdown ending or even a plan as to what should be done once this ends. Realistically speaking, FY21 will be a washout. The market is unlikely to reach the January levels anytime soon and unless it is moving in the upward direction continuously for three months, can one be assured that the valuation will be fair?

The other factor is the kind of disinvestment we are looking at. BPCL no longer looks as attractive with the price of oil below $30/barrel and the future of the sector being uncertain. A global recession is for sure, which means that oil prices will be depressed and the sale of such an enterprise will remain unattractive. Next, Air India has been on the block for some time now, and there is no clear plan about how to go about it given the overhang of debt which is around Rs 60,000 crore. To top it all, the future of the aviation industry is in jeopardy following the breakout of the pandemic as movement across countries will remain barred for at least six months after normalcy returns.

Privatisation push: Cabinet approves strategic sale of BPCL, 4 other PSUs

Finance Minister Nirmala Sitharaman said privatisation of BPCL will be without the company's equity shareholding of 61.65% in Numaligarh Refinery in Assam.

The Cabinet Committee on Economic Affairs on Wednesday approved the strategic disinvestment of the Centre’s entire stake in Bharat Petroleum (BPCL), Shipping Corp, THDC India, and NEEPCO, and most of its stake in Container Corp, while giving up management control in these companies.

It also gave an in-principle approval for the government to reduce stake in certain state-owned companies to below 51 per cent in some while retaining majority stake management control.

These major divestment decisions were taken even as the government races against time to meet its highest ever divestment target of Rs 1.05 trillion for 2019-20. The Centre hopes that disinvestment proceeds will make up for some of the revenue shortfall that is expected this year.

While announcing the decisions in a post-Cabinet meeting media briefing, Finance Minister Nirmala Sitharaman said privatisation of BPCL will be without the company’s equity shareholding of 61.65 per cent in Numaligarh Refinery in Assam.

“The Numaligarh Refinery will be carved out of BCPL and will be taken over by another state-owned company,” said Sitharaman.

Numaligarh Refinery is the largest producer of paraffin wax in the country. The GRM of NRL during FY19 was seen at $11.8 a barrel. The remaining 38.35 per cent stake is held by the Assam government (12.35 per cent) and Oil India (26 per cent).

Of the total 249.4 million tonne per annum (MTPA) refining capacity in India, BPCL has around 15 per cent or 38.3 MTPA. BPCL also has 15,177 retail outlets in India.

The major reason why Numaligarh was kept out of the strategic disinvestment was because of its importance being part of the Assam Accord of 1985 signed between All Assam Students’ Union and the Centre following the anti-immigrant agitation.

Business Standard