CALCUTTA, India, Sept. 19 (UPI) -- Legacies of the past hit the Indian government with vengeance on Tuesday when the Supreme Court ruled that the Indian government, which is ruled by a coalition of 21 political parties -- called the National Democratic Alliances and led by the Bharatiya Janata Party -- cannot divest the state's stake in the two state-owned oil companies, Hindustan Petroleum Corporation Limited and Bharat Petroleum Corporation Limited, without Parliament's approval.
The judgment said the two companies couldn't be sold because they were formed under acts of Parliament in 1974, which mandated that all companies created under the legislative fiat must remain always under the state control. The judgment came following formal requests filed by the Center for Public Interest Litigation and the Oil Sector Officers Association, which questioned the method adopted by the government in exercising its executive powers to divest its stakes in HPCL and BPCL without repealing or amending the laws that created the two public sector units.
Early December last year, the government, after obtaining a green signal from Attorney General that said that the divestment could go ahead without a parliamentary nod and cleared a two-year old logjam on the issue, announced that it would offer 34 percent of its 51 percent stake in HPCL through a strategic sale the price of which would be decided by a bidding process, and, would call for a public offer for BPCL. In June, the divestment ministry said that the divestment of the two companies would be completed by November.
The court also rejected the argument that their shares were listed on the stock exchanges and there was no need to get parliamentary approval. "Sale of shares of these companies, though uninhibited, cannot be to such an extent that the substratum of the character of the government companies is allowed to be lost and converted into an ordinary company without being approved by the general body of shareholders and, in this case, the government," it said.
Clearly, this ruling has far-reaching implications for the government's sell-off program, which has been sputtering for over a decade and appeared to have cleared all hurdles last year with the formation of a dedicated divestment ministry, which claimed that it had obtained the approval of all anti-divestment forces. Halting the whole divestment program shortly after the judgment Arun Shourie, the divestment minister said, "this judgment will have far-reaching consequences not only for divestment in these two undertakings but in other matters also. I don't see any divestments taking place at all. We've stopped all work on it."
And now, even the powerful anti-divestment forces that had often posed serious hurdles in the past and were believed to have been made extinct are raising their heads. While Arun Shourie considered the ruling as a "major setback" to reforms, Petroleum Minister Ram Naik said that the verdict was "historic" and hailed "the supreme authority" of the apex court.
"I'm extremely happy that a public asset which was vested through an Act of Parliament, with the government, is now going to be dealt with by the Parliament," said Kapil Sibal a member of the Congress Party, the biggest political opposition. "In other words, the wish of the Parliament will have to be ascertained, before getting rid of the asset."
Indeed, it now looks that the fiscal year ending March 2003 would the fifth year in a row when the government would fail to meet its divestment targets. There are at least a dozen state-owned companies created by legislative fiat that are on the government's divestment list and according to Shourie, "if prior approval of the legislature is to be taken in each and every case, progress is bound to be excruciatingly slow." The divestment target for the year was $2.82 billion but the government so far has been able to collect just a little over $210 million, which in fact was the worst in the last five years. Since the divestment exercise started in 1991-92, receipts have met the target for the year only three times, the last time being in 1998-99.
Barred too have been the India expansion plans of over half a dozen local and foreign oil companies including Shell-Saudi Aramco, BP-Kuwait Petroleum Corp, Petronas of Malaysia, Chevron Texaco, Exxon Mobil, Reliance and Essar Oil that were in the race for HPCL and had even started their due diligence in August.
But affected most are perhaps the two oil companies, which were already planning a slew of new initiatives. Among them were price cuts on retail and bulk products, and other huge investments in new businesses. "These will now be put on hold," S Radhakrishna, director (marketing), BPCL, said adding, " all the new initiatives we had planned will now get delayed."
However, there is a silver lining to the setback; jolted by the fact that the government would have about $2.6 billion less to spend over the next few month until the end of the fiscal and the fact that its 5.6 percent -- of GDP -- fiscal deficit (excess of the government's spending over its earnings) target now looks even more difficult to attain, the government is tightening its fist. "The government will launch expenditure-compression measures," said D. Swarup an official from Finance Ministry. "These could include a slew of measures to control spending and shore up tax collections."
