Case Study Privatisation Of Vsnl Americas

In a series of articles exclusive to The Times of India, Disinvestment Secretary Pradip Baijal analyses the impact of privatisation on key public sector companies.

VSNL was the most challenging privatisation. The suspense was kept alive till the last day for receiving bids, when finally the Delhi High Court dismissed a petition challenging the privatisation.

First was the issue of whether to privatise at all. Go down to 49 per cent said the pundits - VSNL is strategic. Intelligence agencies need access. These were addressed.

Then came the intricate commercial issues. Should excess cash be withdrawn? Consensus was that it was not advisable to leave huge cash reserves a" excess cash was withdrawn. Next issue - a huge contingent liability on tax. Appropriate provisions were made in the agreement.

The open offer pricing issue also posed a problem. This was sorted out with Sebi.

Finally came the ticklish issue of 770 acres of surplus land. The solution - separate the surplus land from VSNL. Also, the sale proceeds of such land would go to the government.

Finally, the bidders asked: What happens if, post-disinvestment, BSNL/MTNL refuse to route calls through VSNL? The government could not have created a private monopoly in place of a public monopoly.

Therefore, as a prelude to privatisation, the international communication sector was liberalised from April 1, 2002. Hence the worry. VSNL was given the most favoured customer status for a period of two years, but at market rates.

Finally, after a year, the company was privatised in February, 2002 in favour of a Tata SPV for Rs 1,439.25 crore. Including the earlier withdrawal, the government received Rs 3,689 crore for disinvested equity of 25 per cent held in VSNL.

As a public sector monopoly, VSNL tariff rates were high - far higher than global norms. The other distortion - Indians made less calls in comparison to the calls received, for example, 527 million minutes outgoing calls to 2,167 incoming, in 2000-2001. In public ownership, the company could also not finalise any investment plans and reserves kept lying in banks.

It is more than a year that VSNL was privatised. Who are the winners and losers?

Apparently, the company seems to be the loser. The company made huge profits earlier - Rs 1,478 crore in 1999-2000 on a net block of Rs 1,644 crore. Now, because of heavy competition and falling rates the sale proceeds of VSNL and PAT are coming down.

But precisely for that reason the company will now have to restructure and be more competitive. This is happening. The turnaround of decisions in the company is now much quicker.

The nature of services being provided is improving everyday. De-regulation offers the company opportunity to diversify. They would clearly win in the long run.

The severe competition between ILD players has led to the tariff of Rs 48 per minute to the US on April 1, 2002, come down to Rs 24 per minute at present.

As against an average dividend of Rs 10.4 crore earlier, on a sales realisation of Rs 3,689 crore, on a 10 per cent interest rate basis, the tax payer gains Rs 369 crore ever year, in perpetuity.

Then again, investors could never have got such good returns, which they got from the Open Offer of Rs 202 per share. VSNL shares were sold in the market a couple of years back at a PE ratio of 6, when VSNL was a monopoly.

After dismantling of the monopoly regime and everyone knowing that severe competition will emerge, the tax payer got a PE ratio of 11 from the privatisation of VSNL. Inevitably, tax-payers, investors, consumers and the economy have gained.

This privatisation also showed that amongst all the stakeholders, the employees are generally the most progressive minded.

This disinvestment also conclusively proved that the majority had won. Some inevitably lose, but that is necessary if the entire economy has to gain.

Earlier articles:

Privatisation of IPCL: Winners and losers

Balco balance sheet: A win-win deal for everyone

Winners and losers of HZL privatisation

Джабба встряхнул бутылочку с острой приправой «Доктор Пеппер». - Выкладывай. - Может быть, все это чепуха, - сказала Мидж, - но в статистических данных по шифровалке вдруг вылезло что-то несуразное. Я надеюсь, что ты мне все объяснишь. - В чем же проблема? - Джабба сделал глоток своей жгучей приправы.

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