Sucheta Dalal :Hobbled PSUs
Sucheta Dalal

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Hobbled PSUs  

Feb 26, 2006

India’s largest, showpiece petroleum company, ONGC Ltd, has an annual forex payment liability of $6 billion but it cannot hedge its foreign exchange risk. In fact, Prof. Anil Agashe of Symbiosis Pune points out that ONGC could save around $20 million merely by hedging. I learn that this is easier said than done. A top PSU source says, ‘rules’ do not permit PSUs to use all available financial instruments and hedging in the real sense, the ‘principle’ being that PSUs must not get into ‘speculation’ and that even so-called ‘trading’ done by PSUs is actually a tendering process because the ‘system’ does not permit individuals to be ‘trusted’. The source himself concedes that this condition is not as stupid as it sounds, because there have been scams even on short-term parking of funds. Don’t we remember the Portfolio Management Schemes of 1992, where Ministers decided which bank would get PSU funds and collected kick-backs? This, however, means that PSUs are losing potential profits. As far as the government is concerned, ‘‘it does not count if you have lost profits, but if you cause a loss, you’ve had it’’. The consequences are a vigilance inquiry, frozen pension proceeds and probably prosecution. What is worse, the bean-counters will probably examine each single transaction instead of judging performance “on a sigma of calls over time”. The simple solution is privatization or at least independent management with minority government holding. But that’s unlikely to happen soon.


Revenue loss


The Mumbai-Pune Expressway is a good example of how government companies write privatization agreements in a way that reduces revenue generation and ends up passing on high user charges to ordinary persons. The Maharashtra State Road Development Corp (MSRDC) has, over time, hacked revenue generators that were included in the original project. For instance, it dropped the IT-city that was to have come up mid-way between Mumbai and Pune, well after the difficult land acquisition process was completed. This return of land to original owners after the Congress-NCP government came to power probably set a speed record. Similarly, no effort was made to develop petrol pumps and food courts. For years, the food courts were just shabby ‘dhabas’. In recent months a large number of hoardings have cropped up along the Expressway, suggesting that the new owners, Ideal Road Builders, has turned savvy about revenue generation. But no. We learn that MSRDC has deliberately let go the opportunity to develop well-paying advertisement sites, while all hoardings have come up on private land along the Expressway. Since these advertising hoardings cannot be installed without permission from the collector, will someone in the MSRDC be held accountable?


Low profile


Ask a market person who is the biggest individual investor today and he will probably say Rakesh Jhunjhunwala. But those in the know insist that India’s Warren Buffet is not even known. He is Prof. Shivanand Mankekar, a hugely successful investor who obsessively maintains a low profile. With several decades in the stock market and scores of his students entering the market every year, he is known to a large swathe of the investment community, but not to the public. His son Kedar is also a teacher and investor. The father-son duo has an uncanny knack of picking up the best possible scrips, way before they turn into market favourites. According to the grapevine, his net worth runs into hundreds of crores. He is credited with having picked Pantaloon, Ind Swift Laboratories, Spanco Tele etc. well before their prices soared.



Major rejig


The RBI has been looking closely at the Sahara Group’s para-banking operations for well over a year, so it is interesting that a public inquiry has begun now. Informed sources say that the group with intensely private finances was asked to clean up its operations in order to avoid drastic action. The group has always denied any problems but a lot of changes have happened in one last year. Sahara signaled that its finances are as strong as ever by doubling its bid to get the Indian cricket team to wear its logo. At the same time, it sold the airline business after initial denials. The fat losses in the aviation business became public only after the deal. The corporate grapevine insists that the entertainment business is also up for sale, which is again denied by the group. The official line on the real estate front is also that things are hunky-dory, but Amby Valley its expensive township near Mumbai, has suddenly acquired a new logo, spelling and identity. It is not clear if this is part of a government ordered clean-up, or the group’s ‘managing worker’ is only reorganizing operations after a long and secret illness.


-- Sucheta Dalal