Public Sector

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.

People’s Commission Urges Parliament to ‘Fully Investigate’ CEL's  Sale   https://thewire.in/government/peoples-commission-urges-parliament-to-fully-investigate-profit-making-cpse-cels-sale 

The Centre has approved the sale of 100% equity shareholding of the government in Central Electronics Ltd to Nandal Finance and Leasing for a paltry sum of Rs 210 crore.

The Peoples’ Commission on Public Sector and Public Services (PCPSPS) has released a statement “The proceeds from the disinvestment will be meagre compared to the real value of the assets sold because of the inbuilt bias in hasty privatisation towards undervaluation of assets. Moreover, the corporate sector which would buy the public assets would be raising most of the needed resources from the public sector banks.”

The Cabinet Committee on Economic Affairs (CCEA) empowered alternative mechanism for disinvestment – which includes finance minister Nirmala Sitharaman, road transport minister Nitin Gadkari, Minister of state (independent charge) for science and technology Jitendra Singh – on November 30, 2021 approved the highest bid of Nandal Finance and Leasing Pvt. Ltd for the sale of 100% equity shareholding of the government in CEL.

CEL is run by the Department of Scientific and Industrial Research (DSIR), It earned a gross profit of Rs 136 crore in FY21. As of March 31, 2021, the market value of the 50-acre land the CPSE possesses was worth Rs 440 crore as per the circle rate. It has orders in the pipeline worth Rs 1,592 crore, and with these orders alone, CEL would be able to provide the Union government with a gross profit of about Rs 730 crore. It also has Rs 132 crore as collectible dues from the government agencies.

The transaction is expected to be completed during the current financial year 2021-22 (ending March 2022), an official statement had said.

On Trend for Privatisation: Kanhaiya Kumar at Goa Bahujan Samvad 7 Jan 2022   https://youtube.com/embed/78G2A3HlF9A?start=1320&end=1703

Notagainst Private Sector.. but But if Public Sector is finished, then even the Private Sector will not function for people..  Not filling posts is also a sign of impending privatisation. Model of  Vikas is take votes from the majority but notes to a few friends. 

You will recall that Goa foundation has been demanding control of mining and its proceeds to the local people (governed by Public Democratic Law, rather than private companies, whose shares holders only have interest in shareholder value of extracted profits, not local development.

Govt selling profit making strategic PSUs like peanuts to entities of doubtful credentials: Press briefing by Prof Gourav Vallabh at AICC HQ  https://www.youtube.com/watch?v=DG82K6W_70k  https://www.youtube.com/watch?v=qaEVOcMsZvA  Dec 30, 2021 Indian National Congress   the government undervalued central electronics

From Press Statement: 
The BJP government on 29th November 2021 announced the strategic disinvestment of Central Electronics Limited (CEL).

Reserve Price Fixed at 44% of CEL Land Value alone as per circle rate:

Reserve Price set at 20% of Valuation of CEL:

Strong Financials warranted a higher Reserve price: CEL is a profit-making PSU with a net sales of Rs. 296 Crores and Gross Profit of Rs 136 Crores in 2020-21. As of 31st October 2021, CEL has pending orders worth Rs 1592 Crores. With these orders alone, CEL would give GoI a Gross Profit of ~ Rs 730 Crores .

Highly Strategic to National Interest:, CEL is a strategic player in four divisions: Defence, Railway, Solar business and Security systems.

Inter-Connected Bidders: There were two bidders who participated in the bid for CEL: M/S Nandal Finance and Leasing Pvt. Ltd. and M/S. JPM Industries. Both the bidders are inter-related to each other through their parent companies and have quoted bid price nearly equal to the reserve value of Rs. 194 Crores.

Weak Credentials and pending case of winding up in NCLAT against M/s Nandal Finance and Leasing Pvt. Ltd.:

The Congress party asks .. Why a profit making strategic PSU us handover to company with less than 10 employees and no domain experience?