Economy & Equity

How to kill LIC -story behind IPO | The Money Trail  CFA India https://www.youtube.com/watch?v=n4hxuh7CEUM  Feb 20, 2022
If a PSU is in loss, sell it. If it is in profit, still sell. Union government is inventing reasons to sell the national assets. Also the unbelievable and biggest ever loan fraud case in India in this episode of The Money Trail.

The political economy of CPSE disinvestment: Has national wealth been put on a distress sale?
in India  https://countercurrents.org/2022/02/the-political-economy-of-cpse-disinvestment-has-national-wealth-been-put-on-a-distress-sale/  — by E A S Sarma — 16/02/2022

The few oligarchs who fund the political parties and issue diktats on policy are waiting with their war chests of funds ready to buy the Central Public Sector Enterprises (CPSEs) for a song, along with their enormous wealth. The whole exercise is to be completed in a couple of years and those CPSE heads who fail to cooperate will be summarily removed, with the bureaucrats of the concerned Ministries taking over the CPSEs.

Out of the 256 CPSUs, which were operating in 2019-20, 171 earned Rs 1.38 lakh Crores of profits. They contributed Rs 3.76 lakh Crores of tax revenue to the Central public exchequer. They paid Rs 72,136 Crores as dividends to the Centre.

Over the years, the political parties’ appetite for funds increased in leaps and bounds, forcing them to explore new avenues. In 2009, they came up with the innovative idea of an “Electoral Trust” as the new vehicle to channel company donations on a much large scale,without attracting tax liability.

the NDA government went a step further by removing the existing cap on donations and introducing an opaque system of “Electoral Bonds” as the new vehicle to channel company donations on a much larger scale, without the public knowing where they were coming from (https://thewire.in/politics/fcra-reviving-lapsed-law-amending-retrospectively-trumps-ethical-legal-barriers).

Public Private Partnerships – Subsidy and Impunity for Private Corporations by Rahul Varman  January 16, 2022  – Janata Weekly https://janataweekly.org/public-private-partnerships-subsidy-and-impunity-for-private-corporations/ 

Main Points

What we discover in this case (Delhi Metro Case of PPP)

On September 9 2021, the highest court in the country upheld an earlier arbitral tribunal award directing Delhi Metro Rail Corporation (DMRC) to pay Rs 2,782 crores, with interest, to a consortium led by Reliance Infrastructure Ltd (RInfra), which had operated the line till 2013. 

The dispute had arisen as RInfra had terminated the agreement in October 2012, citing the failure of DMRC to cure defects in the civil structure supporting the Airport Metro Express Line.

A special purpose vehicle (SPV), that is, a specific corporate entity for the purpose, by the name of Delhi Airport Metro Express Pvt. Ltd. (DAMEPL), was created with 95 per cent stake of RInfra. DMRC was to undertake design and construction of the basic civil structure, including viaducts, tunnels, stations, etc. on which the rolling stock would move, the finance, design, procurement, installation, operation & maintenance of the Line was to be done by DAMEPL.

The project cost of Rs 2,885 crores by DAMEPL was supposed to be funded in the debt-equity ratio of 70:30. The company arranged for a rupee term loan of close to Rs 1500 crores, and another foreign currency loan of $106 million (more than Rs 500 crores).[13] The amount was largely borrowed from a consortium of banks consisting of Axis Bank and some public sector banks.  Though the Anil Ambani Reliance group was supposed to invest Rs 865 crores in the project as equity, even after one year of operations in March 2012, its equity capital in the project was a paltry Rs 1 lakh .  It had invested another Rs 612 crores in the project, but as ‘share application money’ that was never converted into equity shares. Later the ‘share application money’ was converted into ‘interest free unsecured subordinate debt’.  

In April 2012, DAMEPL claimed that the project was financially ‘nonviable’, and sought deferment of the charges that it was to pay to DMRC for their part of the investment in the project

Then, in April 2012, RInfra changed the ownership pattern in DAMEPL by transferring 65 per cent of the equity from RInfra, a listed company, to a trust controlled by the Anil Ambani group. Thus, DAMEPL became an ‘associate’ of RInfra, and ceased to be a subsidiary of it.

What does Big Capital Bring?

It is repeated ad nauseam that only big business can provide ‘development’...bring in capital, competence, efficiency, so on ..but..

Private capital of course wants all the control and returns, but is absolutely loath to invest a substantial stake of its own in such risky projects.

once Reliance found that it did not receive the anticipated response from the commuters, its first step (in the name of ‘public interest’) was to demand exemption from paying the sums due to DMRC on the large investment that the latter had made in this project (half the project cost).

apart from DMRC’s investment, a sizeable part of the remaining project cost was covered by loans from PSU banks.

Further, land was acquired by State agencies and provided practically free.

In brief, the project is predominantly funded by public money.

Even in terms of knowhow, one needs to ask: what does Reliance contribute to the commissioning and running of a metro rail?  in an interview, E. Sreedharan, the then MD of DMRC, repeatedly said that they had to train the DAMEPL personnel. 

 Thus the private partners contributed neither technological know-how, nor capital, nor competence in estimating demand, nor competence in operating and maintaining the infrastructure.

In all its wisdom, DAMEPL had priced the premium ticket fare at almost 10 times of the normal metro fare. The DAMEPL had plans to generate 75 per cent of revenue through non-fare businesses like retail, property development, advertising, etc. in April 2012, it accepted that the planned retail/commercial activities along the metro corridor were not earning substantial yields, due to lack of passengers.  

But once the Line was taken over by the DMRC in 2013, the fares were drastically cut, and a range of other measures were taken to improve accessibility. These led to a rapid rise in ridership, and helped it overturn operating losses.

The State & Big Capital

first, Big Capital simply does not have the stomach to stay in projects like metro rail, if there is no scope for quick returns.

individual State agencies and institutions of various kinds, whether they be government bodies, PSUs like DMRC, tribunals or the courts, finally are simply incapable of holding private corporate bodies accountable for their acts of omission and commission, given the overall frame of State policy.

Contrast the airport metro case with the repeated ‘adjusted gross revenue’ (AGR) rulings of the Supreme Court against the telecom operators. There was much hue and cry that this would lead to monopolisation of the telecom sector.

Business as Usual for Rulers

frenzy of incentivising and providing public resources for private profiteering, whether by the sale of Air India, the productivity linked incentives (PLI) across industries for Big Capital, the asset monetisation pipeline of the PSUs or the giving away of the oilfields of ONGC to private operators.