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June 21, 2000

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Maruti mum; VSNL, MTNL wary over divestment issue

Neena Haridas in New Delhi

Email this report to a friend After Air-India, it might be time for Mahanagar Telephone Nigam Limited, or MTNL, to look for a partner. The story, however, doesn't end there: powerhouse PSU Videsh Sanchar Nigam Limited, or VSNL, and automobile giant Maruti Udyog Limited, or MUL, might as well have to go hunting for suitable partners. There are some murmurs of dissent and some of approval as the three cash-rich public sector units await the cabinet committee's decision on Friday.

Though MUL officials are tightlipped over the consequences of the meeting slated for June 23, the telecom circles have aired their discontent with the Divestment Minister Arun Jaitley's 'bold decision to sell off government stake in the monopoly MTNL and VSNL'.

The core group of secretaries on divestment has suggested that government stake in MTNL and VSNL be brought down to 26 per cent, and 50 per cent government stake in MUL be offloaded by the year-end. The group has suggested that a strategic partner be inducted -- Air-India style -- for MTNL, so that it is able to maintain its dominance despite tough competition from private sector. Currently, the government own 56 per cent in MTNL and 54 per cent in VSNL.

However, the Department of Telecom Services, or DTS, expressed its opposition to the proposed divestment. According to sources in DTS, the move is being opposed because DTS fears that it could have a negative impact on the fortunes of the employees of DTS as and when it is corporatised.

DTS is slated to be corporatised by the year end and MTNL would become a 51 per cent subsidiary of the corporate entity. However, if sell-off in MTNL does take place, through divestment of a large stake to a private player, the department fears that a level playing field between employees of the corporatised entity and MTNL cannot be ensured.

"The private players would be in a position to offer better emoluments and salaries that could have a deleterious impact on the employees of DTS, we fear," a DTS official said. MTNL feels that it is up to the government to take an integrated view on the issue of divestment in MTNL in relation to its impact on DTS once the latter is corporatised.

Meanwhile, Maruti is maintaining a stoic official silence. However, it is learnt that Suzuki, the 50 per cent Japanese joint venture partner with the government, would only be too keen to take the load off the government by the end of this fiscal.

According to industry analysts, the move to divest stake in MUL would be a good one it done at the earliest. Says Murad Ali Baig, "If the government intends to get a good price for MUL, the divestment process is started at the earliest. MUL is losing its market share. Hence, it would make sense only if the government is able to cash in on the brand equity and brand value that MUL still enjoys."

Besides, these three biggies, there are more cash-rich PSUs that could be put on the block after the cabinet committee's decision on Friday. The divestment group has suggested that 10 rich PSUs should be privatised this year, followed by 50 more in the next three years.

Hence, the meeting on Friday is crucial for the government's reform process.

One, the committee's decision will tell if the government is serious about privatisation -- that is, whether the government is ready to let go of monopolies and fund-flush PSUs.

The other PSUs awaiting cabinet decision include IPCL, where a 25 per cent stake is slated to divested, Rashtriya Ispat Nigam (74 per cent divestment), IBP (25 per cent proposed to be offloaded), HPCL (26 per cent sell-off mooted), and Hindustan Zinc (26 per cent divestment call).

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