It's like life after death for privatisation. Three months after the Atal Bihari Vajpayee Government and many of its key ministers almost killed the privatisation programme, it was suddenly brought back to life on December 5. What made the surprise pleasant was the prevailing despondency about the Government's ability to carry forward privatisation and other tough reforms.

ARUN SHOURIE Disinvestment Minister

GAINED: Restarted privatisation in crucial oil sector.

LOST: Agreed to public issue for BPCL and accepted other's views.

Cementing the cynicism were more than half a dozen false starts since September 7 when the Government declared a three-month moratorium on the privatisation of HPCL and BPCL. No wonder, the revival of the privatisation of the oil PSUs was met with disbelief by everybody-the stock markets, the media and even officials of the Disinvestment Ministry.

What broke the logjam? And will December 5 be the day of deliverance for privatisation and reforms?

It was widely believed that the privatisation programme had collapsed after the Government's self-imposed moratorium snowballed into opposition to the sale of almost all PSUs. The vehement opposition by Defence Minister George Fernandes and Petroleum Minister Ram Naik to the strategic sale of any oil PSU, the isolation of Disinvestment Minister Arun Shourie in the Cabinet, the non-assertive attitude of Vajpayee, the neutral role played by Deputy Prime Minister L.K. Advani and a high-pitched corporate rivalry buttressed this belief ("Dirty War", September 22).

WHAT THE DEAL MEANS

HPCL to be privatised through strategic sale, BPCL by a public issue.

Both sales to take about a year.

HPCL's sale to fetch a higher price than BPCL's disinvestment.

Guidelines to be framed for disinvestment in natural asset companies.

An asset-management company may be set up to hold residual government stake in the PSUs sold.

However, in the three months since September a few things have turned in Shourie's favour. By October Advani was convinced that privatisation had to be carried forward and a fair solution reached on the sale of HPCL and BPCL soon. Regarding concerns that Reliance Industries should somehow be prevented from buying either of the two PSUs, Advani is known to have said that government policies cannot be tailored to be against or in favour of one company.

The solution lay in getting all the ministers involved in the disinvestment drama under one roof-in the presence of Vajpayee and Advani-and hammer out a working formula. Despite some attempts, such a gathering had not been possible in the past two months because one or the other minister would excuse himself every time a meeting was proposed. The opportunity came on December 5 when a cabinet meeting was scheduled at the prime minister's 7 Race Course Road residence. An hour before the Cabinet met at 6 p.m., key players in the disinvestment battle were asked to stay back for another meeting on privatisation after the Cabinet's business concluded.

In addition to Vajpayee, the meeting included Advani, Fernandes, Shourie, Naik, Finance Minister Jaswant Singh and Foreign Minister Yashwant Sinha. The atmosphere was edgy as some of these men had bitterly-and publicly-crossed swords over privatisation in the past three months. Just two days earlier, Fernandes had despatched a letter to Vajpayee suggesting that disinvestment in HPCL and BPCL shares should only be through a public issue.

When Naik raised the issue at the meeting, he was told that the $130 billion Indian capital market did not have sufficient "depth" to ensure good returns on public issues of the size that the PSUs would require. The US stock market is estimated to be $13,000 billion in size and the UK's stock exchange $10,000 billion. So while public issues have been successful in those countries, they can be used in India only in select cases. Besides, a strategic sale of a portion of government equity does not preclude selling the remaining equity through a public issue.

The introduction of a golden share law was also proposed. Such a law allows the government to veto critical management decisions after selling off a majority of its stake in a PSU. It also protects privatised PSUs from being taken over through creeping acquisition by another company. But since such a law would take time to be enacted and that it might lull the new managements of PSUs into complacency was seen as reasons not to consider the golden share concept. The UK, which adopted the golden share principle in a few privatisations in the 1980s, has since abolished the law because it was found counterproductive.

FERNANDES Defence Minister	RAM NAIK Petroleum Minister	JASWANT SINGH Finance Minister	L.K. ADVANI Dep. Prime Minister	A.B. VAJPAYEE Prime Minister
Gained: Forced a three-month hiatus on privatisation. Demonstrated he can play party pooper. Lost: Couldn't keep Reliance out of the fray for oil PSUs. Had to accept strategic sale of PSUs.	Gained: Prevented strategic sale of both oil PSUs. Will press for ONGC's bid for HPCL. Lost: Couldn't get oil sector classified as strategic. Got no support for preventing sale of profitable PSUs.	Gained: Government's reformist image gets a boost. Will benefit from renewed business confidence. Lost: Couldn't get approval for an asset management company under his ministry.	Gained: Used the episode to refute differences with Vajpayee. Was able to strike a balance between political and economic needs. Lost: Couldn't put all of Fernandes' apprehensions to rest.	Gained: Demonstrated his will to push reforms. Signalled that he still calls the shots in Government. Lost: Time. Disinvestment will take time to regain momentum. Ministers could hinder progress.

The meeting ended in a compromise. HPCL would be put up for strategic sale while the government holding in BPCL would be diluted through a public issue. The percentage of equity to be sold in the two companies will be decided by the Cabinet. Shourie had opposed privatisation through a public issue since it would have fetched a much lower price than a strategic sale would. In strategic sales, the government can charge a control premium from the buyer. But the disinvestment minister had to compromise because that was the only way to clear the logjam. Fernandes wasn't happy with the compromise either. But he was told by Advani just before the meeting that the stalemate had to be resolved. Vajpayee was more definitive about wanting a solution at the meeting than he was on September 7. He is reported to have sealed the compromise formula by saying, "Hausla rakhiye (be confident)." In the end, everyone conceded from their earlier position (see graphic).

THE HONEY POT
What's at stake in the two oil companies
	HPCL	BPCL
Refining capacity*	22.7 mmt**	17.4 mmt
Petrol pumps	4,729	4,701
LPG agencies	1,822	1,729
LPG customers	1.59 cr	1.52 cr
Kerosene outlets	1,638	1,638
Net profit	Rs 788 cr	Rs 984 cr

But an agreement in principle does not always mean an agreement in practice. Shourie has to get the compromise formula cleared by the Cabinet. An issue that the Petroleum Ministry is likely to contest in the Cabinet is whether ONGC and GAIL should be allowed to bid for HPCL. The September 7 cabinet decision bars a PSU from bidding for another PSU unless the parent ministry of the bidding PSU makes an explicit case for the bid and the Cabinet approves of it.

Then, of course, there is the opposition from outside the Government. The Congress, caught unawares by the sudden revival of privatisation, has questioned Shourie on how he could privatise oil PSUs without amending the Nationalisation Act of 1974. It was under this act that HPCL and BPCL were formed by taking over businesses from a clutch of Indian and foreign oil companies. The matter has been referred to the attorney-general of India who is likely to give his opinion in a week's time. The Government is not overly concerned as the majority stake in Maruti Udyog Ltd-a company which too was nationalised-was sold by the Congress government to Suzuki Motor Company in 1992 without seeking Parliament's approval. IBP, another public-sector oil company which was nationalised along with HPCL and BPCL, too was sold in February through a strategic sale without seeking parliamentary approval.

SPILL OVER The struggle for the privatization of the two oil PSUs has already taken close to 10 months. And it's still not over.

Cabinet gives in-principle nod to privatisation of HPCL, BPCL. Bids invited for appointment of advisers for the two PSUs. Cabinet seeks timetable on PSUs approved for sale. Cabinet meeting on disinvestment deferred. Shourie meets Naik to iron out differences. Rift remains.   Cabinet meet on disinvestment deferred at 11th hour. Another cabinet meet on disinvestment deferred. Both sales put off for three months. PSUs barred from bidding for PSUs. Group of Ministers clears privatisation of HPCL, BPCL.

Congress leaders concede that their opposition to privatisation is more cosmetic-after all the party's Governments in Punjab, Chhattisgarh, Kerala and Karnataka have adopted aggressive privatisation programmes. Undoubtedly, it is the opposition within the NDA Government and the concerns of the Sangh Parivar's trade wing, the Bharatiya Mazdoor Sangh, that Shourie has to contend with.

The December 5 package itself has the seeds of a confrontation. For instance, the vague proposal to have separate guidelines for privatisation of "natural asset companies". Nobody in the Government is sure what a natural asset company means. The apparent motive behind the proposal is to delay the privatisation of NALCO.

Another minor thorn in the Disinvestment Ministry's flesh could be the proposal to study the feasibility of setting up an asset-management company to hold and sell the residual government shares in the PSUs already part sold to a strategic investor. The ministry feels that the Unit Trust of India can play this role in the case of HPCL and BPCL.

This, however, is not the time to count the compromises. For if privatisation emerges the winner, any compromise will be worth making.