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Thursday, 29 September 2011 12:12 |
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D. Raghunandan
September 29, 2011
In a move with far reaching consequences, the Defence Acquisition Council of the Ministry of Defence (MoD) last week gave in-principle approval to divestment of 10 percent stake in Hindustan Aeronautics Limited (HAL), currently a 100-percent state-owned defence public sector undertaking (PSU). HAL will be the third out of nine defence PSUs in which the state has off-loaded shares. The state has already divested 25 percent stake in Bharat Electronics Limited (BEL) and 34 percent in Bharat Earth Movers Limited (BEML).
For several reasons, the HAL disinvestment has greater significance. HAL with annual sales of over Rs.130 billion or Rs.13,000 crores ($3 billion) is much larger than either BEL or BEML. BEL makes radars, other defence-related avionics and instruments, while BEML manufactures a range of four-wheeled vehicles, transporters including mobile missile carriers, railway coaches and earth-moving machines, but neither is the sole manufacturer of such items even within India. HAL is India’s only defence aircraft manufacturer and arguably Asia’s largest. Indeed, MoD has in the past even resisted proposals to separate the Kanpur Division of HAL which makes mainly civilian aircraft, despite government’s keenness to have HAL focus only on defence aviation, because of the strategic importance of HAL in the Indian aviation industry. India’s national security and its hard-won self-reliance in high technology areas, especially in the crucial defence sector, are thus interwoven with HAL and its capabilities and role.
Proposals for disinvestment of HAL have been doing the rounds for a long time, having first been mooted as far back as the ‘80s, but were always and quickly shelved precisely because of the sensitivity of such divestment in the defence aviation PSU. But clearly there has been greater readiness to embrace the idea in the new climate of privatization especially under UPA-II. Disinvestment of profit-making PSUs is now virtually mandatory. Government divestment policies have also been tweaked to permit PSUs to retain substantial proportion of divestment proceeds for reinvestment in infrastructure, capacity enhancement and technology upgradation, rather than handing over the proceeds to the treasury for meeting social sector expenditures. Whatever be one’s views about disinvestment of PSUs in general, surely defence PSUs require to be regarded differently, and other strategic considerations must come into play.
Rationale Given the strategic importance of HAL and therefore the significance of the move to off-load some government stake, the rationale behind this decision has not been made clear at any level.
Several government spokespersons have cited “lessening of the government burden” for HAL’s ambitious yet essential modernization programme as the prime motivator. HAL expects to invest about Rs.200 billion or Rs.20,000 crore over the next decade in upgrading its facilities. These modernization plans are necessitated, not only by the obsolescence of much of HAL’s several decades-old facilities, but especially by the upcoming license-manufacturing or sub-contract tasks in connection with the many new military aircraft that India has ordered or will soon be ordering.
In years gone by, HAL could only have approached government for these funds. But this is no longer the case. Navratnas including HAL now have greater autonomy. HAL has huge cash reserves, reportedly over Rs.9 billion or Rs.900 crores, and excellent credit rating. With the new and forthcoming acquisitions, HAL’s order books have swollen and in 2010 are Rs.85 billion (Rs.8500 crores) more that last year! HAL is already manufacturing the Sukhoi Su-30 MkIs and Hawk Advanced Jet Trainers, and will soon start work on the over $10 billion (Rs.45,000 crores) Medium Multi-Role Combat Aircraft (MMRCA) and later on the Russo-Indian Fifth Generation Fighter Aircraft (FGFA) expected to be worth over $30 billion (Rs.135,000 crores) in all. HAL will start serial production of the “indigenous” Tejas Light Combat Aircraft in a few years. HAL will also be undertaking offset work for several other smaller but financially significant recent or forthcoming acquisitions, such as the Boeing P8i reconnaissance aircraft, Eurocopter and the carrier-based MiG 29s expected to come with the Admiral Gorshkov, and will also participate in upgrade contracts for the Jaguar, Mirage 2000 and so on. HAL will remain one of the most profitable PSUs, having registered a profit of around Rs.20 billion or 2,000 crores in 2009-10, because of its privileged cost-plus pricing structure. With all this going for it, HAL can easily raise the funds it needs from financial institutions.
So why should HAL go in for divestment? Some commentators have opined that “going public” would help improve corporate governance. This is hardly credible. The modalities of divestment are not yet decided upon, and there is considerable doubt if it will take the form of an IPO for retail investors. Past experience also shows that 10 percent stock here or there makes no difference to how a company is run.
If improving HAL performance were really a goal, there are many measures government or the Department of Defence Production (DoDP) could take. Greater autonomy for HAL, professionalization of its management and proper oversight has long been required but never seriously addressed. Government, MoD, DoDP and HAL, have always hidden behind the “secret” veneer of defence and other strategic establishments, and a cloistered cost-plus pricing policy reaping profits without accountability. Greater functional autonomy for the different divisions of HAL has also long been called for. And, contrary to government’s apparent desire to reserve HAL for military aviation, increasing the civilian aviation component in HAL’s portfolio would increase efficiency, capabilities and culture of user-responsiveness.
Of course all this can be discussed, but rationale for divestment of HAL appears not to lie in these considerations but in an ideology of privatization and, perhaps more important, in the on-going efforts by vested interests to pry open India’s defence manufacturing sector and gradually hand it over to corporate houses both Indian and foreign.
Privatization of Defence Production Strenuous and determined efforts are being made to open up defence production in India to the private sector and to foreign direct investment (FDI). First the defence industry was opened up in 2001 to 100 percent private participation including upto 26 percent FDI. Then the Defence Procurement Policy as modified various times till 2010 introduced a compulsory offsets policy under which foreign suppliers would sub-contract work to Indian partners upto some percentage which, combined with the huge spurt in defence acquisitions earlier opening up of defence manufacturing to the private sector, encouraged large corporations to enter the defence sector in a big way. Finally, a new Defence Production Policy was announced which explicitly promoted private participation in defence manufacturing and in fact invited the Indian corporate sector to participate in the much-anticipated bonanza of Indian acquisitions of an estimated $50 billion over the next few decades (see http://www.delhiscienceforum.net/peace-and-disarmament/432-defence-production-policy-.html).
As if all this were not enough, the Department of Industrial Policy and Promotion (DIPP) put out a formal Discussion Paper in May 2010 http://dipp.nic.in/DiscussionPapers/ DiscussionPapers_17May2010.pdf calling for raising the ceiling of FDI from 26 percent up to 74 to 100 percent! The ostensible rationale was that if foreign manufacturers were to be compelled to transfer technology through the offsets provision, they would not part with state-of-art technology and risk its leakage unless they had greater control. In other words, if for instance Boeing were to sell F18s to India and part with related technologies, they would do so only if they were permitted to open a dominantly Boeing-owned entity in India which would then undertake the offset manufacturing. DIPP further argues that this would also promote export of military hardware from India. The DIPP’s great concern for the interests of the foreign vendors, or even its focus on the commercial aspects, do not unfortunately extend to a similar concern for building indigenous technological capability which obviously would not happen if the technology was simply going to be transferred from Boeing USA to Boeing India!
We have already seen that HAL is likely to be a major beneficiary over the next few decades through license manufacturing or offsets contracts, since a considerable proportion of big-ticket Indian defence acquisitions are likely to be in the aviation sector. It may therefore well be that the divestment of HAL is a first step, but a very important one at that, the thin end of the wedge if you like, to prize open Indian defence aviation industry to the Indian and foreign corporate sectors.
Straws in the wind here are already several significant pointers to this. The trend of Indian corporate majors such as Tatas, Mahindras, L&T and so on setting up substantial infrastructure for military hardware production is by now well known. Pipavav is set to emerge as a major partner of the state-sector Mazagon Shipyards, if not overtake it, as regards warship and even submarine production.
Former Chairmen, other retired senior HAL executives and numerous defence and industry commentators have started raising a chorus of calls for stepping up the privatization of the Indian defence aviation sector. It is argued that 10 percent divestment in HAL is too small, and that bringing in retail investors will not serve the purpose, so efforts should be made to attract corporate investors including foreign companies. Indeed that may already be the government thinking, as revealed by a source off-the-record to some business dailies. The Society of Indian Aerospace Technologies and Industries (SIATI), with over 300 corporate members, has called for converting HAL into a public limited company with private partners. Even otherwise well-meaning Air Force spokesmen, while bemoaning that the Indian private sector has a poor record in R&D and has unknown capabilities when it comes to defence hardware, argue that India’s defence PSUs including HAL are over-burdened and stretched to the limit, and that private sector involvement could help. But defence PSUs sub-contracting work to private sector players is a very different proposition to having major private defence manufacturers in India, or even foreign defence majors with Indian subsidiaries. And the latter is what many powerful voices are pushing for. In an Editorial on 14 September, the Financial Express called the HAL divestment “inadequate” and argued that, just as handing Suzuki a dominant stake and role in Maruti promoted the Indian automobile sector, what HAL needs is a strategic stake sale! So if Maruti-Suzuki, why not HAL-Boeing?
The saving grace is that the HAL divestment is not a done deal yet. It now needs to get clearances from the Finance Ministry, Cabinet Committee of Economic Affairs and go through different levels of government. Can this dangerous move be stopped?
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Last Updated on Thursday, 29 September 2011 12:16 |
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Monday, 12 January 2009 10:54 |
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29/03/08
D. Raghunandan
Everything in infrastructure or services in India these days has to be “world class”. And according to liberalizers in government and outside, especially in the media, this must mean owned and run by the private sector preferably with foreign collaboration. The now familiar argument is that the state sector, again by definition, is incapable and that foreign partners will bring in much-needed capital and, more importantly, the “latest” in advanced technologies and management, while the consumer would be king in this “open” environment. Undeterred by experiences of the Enron fiasco or privatization of electricity distribution, which clearly showed that private monopolies are in fact the anti-thesis of cost-efficiency and consumer friendliness, the UPA government adopted the very same approach to modernization of India’s airports beginning with the metros. And once again, arguments against this course advanced by numerous expert commentators, progressive sections, trade unions and even the public sector Airports Authority of India (AAI), were brushed aside. |
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Last Updated on Monday, 12 January 2009 13:05 |
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Monday, 12 January 2009 10:46 |
WE have earlier focussed on how we need to make BHEL a global player in power equipment manufacturing. This is doubly important, as the major power market in the world today is China and India, followed by the rest of Asia. The developed countries do not have any major programme of investing in additional power generation capacity, their focus being restricted to renovating of ageing units. Given that the markets are in Asia, it is not surprising that the new emerging global players are in countries that have a large domestic market for power equipment. Interestingly enough, while the emerging players such as Doosan, Dongfang Electric Corporation, Harbin Power are all supported by their governments, not only through protection in the home market but also through support of technical and research institutions and various subsidies, the government of India seems to believe that BHEL can fend for itself in becoming a global player. GLOBAL PLAYERS
Before we go into the details of the BHEL’s position in the domestic market, it is worthwhile looking at the larger global picture. For much of the last century, the power equipment suppliers were a small club and exerting monopoly power. They operated as a cartel and saw a steady drop in their numbers through consolidation, acquisitions and mergers. The big 6 -- ABB, GE, Alstom, Siemens, Hitachi and Mitsubishi -- had a stranglehold on the global power market. The last twenty years have produced a sea change in this scenario. Today, ABB and Alstom are sick, Alstom requiring a huge bail-out recently, Siemens survives because of its electronics division and its tie-up with BHEL, and the Japanese are not doing too well either. Instead, the new kids on the block are the Chinese, Indian, and Korean companies. This also ties up neatly with where the power markets are: they are in China, India and Korea. The question is can they become global players on their own or do they require government support?
If the media is to be believed, companies become global players once they are cut free from government: the government support is not only not required it is positively harmful for such efforts. Subir Roy, in his Op-ed piece in Business Standard of July 13, castigates the Left for not understanding this “obvious” truth. Of course he is careful not to address who BHEL’s international competitors are. Or how the earlier players became global in the first place. Let us start with some simple facts. The French government’s role in Alstom is well known. It is still largely government owned and has received a huge bailout worth billions of Euros only recently from the French government. Only the naïve believe that large MNCs in the power sector became such without support from their government. As is well known, Korean and Japanese companies work very closely with their governments. In all these cases, the role of the government is not only in protecting the home market, but also in providing export credits as well as political muscle when called for. Even this is not the full story. When new technologies are developed, it is the government who takes the basic technology risk and not the power equipment manufacturers. Those who are familiar with technology development, would know that most major advances have come from the home governments being willing to under-write projects using such new technologies. They are set up as technology models for the future and are expected to be the place where the new technologies are deployed and made ready for the domestic and international market. Let us look at how China has used its domestic market power to establish its power equipment manufacturing companies. The two major equipment manufacturing companies are Dongfang Electric Corporation and Harbin Power. One has to only to read their website to see the kind of support that they receive from the government, apart from market protection. Dongfang Electric Corporation states “Dongfang Electric Corporation….has cultivated and forged a superior engineering technical team of more than 5000 members, which consists of the academicians of China Engineering Institute, the experts of national and provincial levels, the science & technology personnel enjoying the special subsidies from government, as well as the high and middle professional technical personnel and senior technicians.” In the Three Mile Gorges project, both Dongfang and Harbin Power were associated by the Chinese government with the two international consortia supplying the equipment. As a result Harbin Power Equipment and Dongfang Electrical Machinery are benefiting from extensive technology transfers. The last two units of the first phase were almost entirely constructed in China and these domestic groups can be expected to take the major share of work of the second phase of 8,400MW. VISION OF NEO-LIBERALISERS Subir Roy has argued that the Left lacks a vision of technology. His vision is the familiar one of all neo-liberalisers: let the market take care of BHEL. In what senses this provides a vision of technology is difficult to fathom. Not content, he rushes in with the argument that BHEL should pick up small niche players like Max Controls (as BHEL did for its control system) for its portfolio of technology. Well, that is exactly what BHEL had done in acquiring supercritical boiler technology from Babcock Borsig, which was rejected by NTPC. If this were his vision, it seems a fairly innocuous even if a trivial one. His real problem lies in believing that this is enough. What we had argued earlier is that it required a governmental intervention to either force NTPC in accepting Babcock’s technology or asking BHEL to get another partner before the Rs 8,000 crore Sipat bid was opened. The problem comes in believing that this was not a critical decision for the future power market in India. Roy’s other argument that BHEL must develop technology on its own is an anachronism in today’s world. Nobody develops all the technology it needs. The larger the corporation, the bigger its appetite for technology developed by others. BHEL needs support to build this portfolio starting with supercritical boiler technology. That Doosan, TPE and Dongfang can provide this technology at competitive prices in India and BHEL in partnership with Alstom cannot, is the crux of the problem. An ostrich act of not noticing this that the government (and Roy) performs will not help. Roy’s (and much of media’s) other argument is that the Left is undercutting government’s efforts to raise revenue. Presumably, he would be equally unhappy if tariffs, which amount to about 18.5 per cent of our revenue is slashed in the on-going WTO negotiations and has also been equally unhappy with the continuous tax cuts offered to the rich in the country. Or does his heart only bleed for the revenues of the government when public assets are not allowed to be privatised? VIOLATION OF CMP We have no quarrel with Roy maintaining his view that all public sector enterprises need to be privatised. But what he forgets is this it is not his views that informs the Common Minimum Programme (CMP). The CMP is unambiguous in that profit making public sector enterprises will not be disinvested. This is the basis of Left’s support to the UPA government. The Left is objecting a violation of the CMP, to a subject, which carefully Roy avoids in his rather long and vituperative piece. Let us however take the argument that BHEL’s sale of 10 per cent shares makes good commercial sense. The order books of BHEL are completely full for the next three years. BHEL has received orders totaling Rs 32,000 crore. It has generated a pre-tax profit worth more than 1000 crore last year. It has a very low debt: equity ratio: only 0.1. BHEL needs to expand and expand rapidly if it has to meet the demands that it is going to be put on it for the domestic market alone. It needs to secure advanced technology, leveraging its position in the domestic market. That the only “vision” that the government and the media experts have is of selling stock (not even raising capital for BHEL) speaks for itself. It is this impoverished view of manufacturing that has seen a negative protection in the Indian market for heavy engineering and capital goods. THE NEW CAPITALISM There is another reason that the media experts are happy with disinvestments. This comes from the way they look at the economy. For them, as well as the inmates of the finance ministry, the stock market is the economy. If it booms, the economy is booming, never mind employment, production of goods, agriculture, etc. The stock market is the only market in their books. The new capitalism is driven, not by what companies produce, but how they are viewed in the stock exchange. The stock market therefore needs periodic doses of steroids – FDI in telecom to allow trading of telecom stocks, sale of BHEL shares, as it is a “hot stock”. The need to shore up continuously the stock market is what is driving the neo-liberal agenda. One can quarrel with the capitalist ideology of an Adam Smith or a John Maynard Keynes. But their brand of capitalism did deal with the wealth of nations. The new capitalism consists of the virtual economy of the stock market and not the one where people work and produce goods. It has little to do with the reality on the ground and everything with the sterile worlds of speculative capital |
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Monday, 12 January 2009 10:41 |
THE media has cast the Left’s opposition to the proposed disinvestments of 10 per cent of BHEL as one more instance of its inability to change its ideology with modern times. Efforts also are made to compare the BHEL disinvestments with that of the loss making undertakings in West Bengal, where only after years losses and after being convinced that these cannot be turned around that the Left Front government is now thinking of shutting them down. Even to an ideologically blinkered media, simple commercial common sense would show the difference between shutting down loss making PSUs from that of selling shares in one of the leading and most profitable companies. But then, common sense is quite uncommon, at least amongst our media experts.
IMPRESSIVE RECORD OF BHEL
BHEL is one of the most successful Public Sector Undertakings in the country. With a government investment of only Rs 165 crore, it has a total asset base of about Rs 12,000 crore today. Only in 2003-4, it has paid a dividend of 60 per cent; if we take this dividend and the government’s share in BHEL’s retained earnings, it totals to about Rs 500 crore --- or more than three times in one year than what we put in it decades back. BHEL has kept the major power equipment MNCs at bay in the Indian market. The initial technologies received for boilers with Czech, Russian and Combustion Engineering (US) were inappropriate for Indian high ash coals. It is only with BHEL’s experience and change of these designs that we could achieve the remarkable improvement of the Plant Load Factor in our power plants.
Instead of highlighting the failure of the government to build BHEL as a global player, the media experts want to applaud the attempt of the government to seat its competitors on the BHEL board. On this count, the UPA is no different from NDA: both have hamstrung the Indian PSUs even in the domestic market, let alone encourage them to become global players. This despite the assurance in the CMP that the profit making PSUs will be encouraged to become globally competitive. The Left had agreed that in order to become globally competitive, the PSUs could access the capital market to finance their expansion. To argue that government selling BHEL shares is same as raising capital from the market is to forget that by disinvesting shares by the government means the proceeds enter the annual budget (irrespective the name the UPA may give to this corpus), while in the other case – raising money from the markets, the proceeds of this dilution of equity enters the Company’s corpus helping it to expand.
NOT PROTECTING - NURTURING BHEL
Even worse, BHEL is not only not being protected in the Indian market but is being frozen out in various ways. Recently, BHEL’s bids for the supercritical boilers in Sipat and Barh were rejected by NTPC. The recent qualifying requirement floated by Nyevelli Lignite Corporation for a 250 MW fluidised bed boiler also requires BHEL to get an MNC partner. This is apart from the inverted duty structure in which the raw materials and intermediate goods that BHEL imports has higher duty than the finished product; in duty terms it means it is cheaper to import power plant equipment than manufacture it here. It is these series of steps protecting the MNCs in the Indian market that is now being capped by the UPA government’s decision to sell 10 per cent of BHEL shares. Foreign investors already have 22.7 per cent of its shares through the FII route. With more than 26 per cent shares, the FII’s are entitled to seat on BHEL’s board and privy to all its strategic and commercial plans. No sensible corporation would ever allow this to take place. Unfortunately, it is the neo-liberal ideology that is guiding the government’s policy and not any commercial sense.
Let us look at the recent cases where BHEL is being squeezed out of certain emerging sectors of the power market. After years of sticking to sub-critical boiler technology and unit sizes of 210 and 500 MW, there has been an interest of taking the next step and going to super-critical technology and unit sizes of 660 MW and beyond. The super-critical boilers operate at higher pressure and temperatures and offer higher efficiencies, even though the capital costs are also generally higher. NTPC and AP Genco have both been actively exploring the super critical boiler route, with other state electricity Boards also actively watching. NTPC floated the first tender for Sipat (in Chhattisgarh) asking for a combined boiler-turbine plant bid.
BHEL, in its preparation for this new technology, had reached a collaboration agreement with Deutche Babcock (later re-named as Babcock Borsig). Deutche Babcock had a long history of designing and supplying super-critical boilers in Germany and in other countries. It was in financial difficulties as the power equipment market in Europe has shrunk with no new plants in the offing and competition from late entrants in the world market such as Doosan (Korea), TechnoPromExporte (Russia) and BHEL. Babcock went financially bankrupt and the only surviving part of this combination was the design wing. For BHEL to have gone into a collaboration with this entity made eminent sense: they were able to get hold of all the designs and design experience without being burdened by a collaborator who would try and maximise its high cost manufactured content. Unfortunately, NTPC decided that this was not good enough and rejected the BHEL’s bid. Subsequently, BHEL teamed up with Alstom, France and predictably its bids in Sipat and Barh have foundered on the high cost content of Alstom. The Sipat plant was split in to two parts with the boiler order going to Doosan and the turbine one going to TechnoPromExporte (TPE). Another Barh order has gone to TPE. The two project costs total up to more than Rs 16,000 crore of which the lion’s share is for the main plant equipment – boilers and turbines.
CAVALIER TREATMENT OF PSUs IN INDIA
Interestingly enough, NTPC, which had made all this noise about super-critical technology and BHEL’s lack of experience on this, had no similar objections against Doosan’s lack of experience in high-ash coals. This, despite our past experience in boiler technologies that showed that without design experience of high-ash coals, boilers tend to have very high rate of failures.
The Sipat case brings out how Russia and Korea nurture their power equipment companies while India does not. Sipat was meant to be test case for super-critical boiler technology and whoever got this order would get the inside track for all future orders. It would also set the basic standards for all such plants. With BHEL, one of the leading equipment manufacturers in the country, it was essential that its credentials should have been examined and straightened out before any tendering process. That NTPC and BHEL were at cross-purposes here only shows the cavalier manner with which we treat our PSUs and the use of our local market for developing indigenous capabilities. The issue here was not preferential treatment but only a level playing field in which BHEL would be allowed to bid with a technology that was certainly more than adequate for the purpose. That we should not only give up the future power plant market to foreign companies but also actively freeze our local manufacturer out, only shows the nature of our commitment to turn our PSUs to become global players.
Let us look at Korea and Russia and how they treat their local companies. Doosan has secured all such order in its home market and thus become qualified to enter the global market. TPE had the support of Putin, the Russian prime minister when NTPC thought of rejecting its bid. This is not unusual. All countries commercially support their companies, as the recent Boing and Air Bus public fracas indicates. It is only here that we decide not only to allow others to enter our markets, but to help such entry by keeping out our PSU’s. All this in the name of so-called market liberalisation which none of the biggies in the international markets seem to follow. And let us also ask a simple question: if instead of BHEL, if it was Reliance as the bidder, would NTPC and the government of India been so cavalier of its needs?
Sipat is not the sole instance. Barh has followed Sipat. The recent 250 MW project of NLC follows the same pattern. It does not recognise 125 MW fluidised bed boiler that BHEL has installed. However, BHEL is accused of lacking experience and it is insisted that BHEL gets a foreign partner. Net result is that BHEL is now forced into a partnership with Lurgi and the chances of a much higher bid price and consequently BHEL losing out here too looms large. These are not minor matters. Both super-critical and fluidised bed technologies are crucial to India’ future. That these vital areas are being marked out of bounds for BHEL speaks for itself about our commitment to turn India into an industrial giant. No giant can compete with one hand (if not both) tied behind its back.
We have discriminated for years against BHEL by an inverted duty structure that helps its competitors to import equipment at lower prices, we have denied it ability to give supplier’s credit and now have frozen it out of vital emerging areas of technology. If this were not enough, we want to seat their competitors on the cockpit of the company – the Boardroom. It is time that the Indian people call a halt to this profligate squandering of its hard-earned assets – financial, technical and human. BHEL disinvestments are not just one more issue of privatisation. It involves the future of the power sector in India. That is why we must stop this disastrous step.
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Monday, 12 January 2009 10:38 |
IT is an irony, indeed a tragedy, that on World Water Day (March 23, 2004), one should be writing this article about efforts being made at the level of both the centre and many states in India to privatise water, a basic human necessity rightly considered as a public good but now being sought to be expropriated by corporate interests using the instruments of imperialist globalisation.
A variety of moves have been quietly underway for some time now, under the active prompting of the Word Bank, IMF, Asian Development Bank and other multilateral agencies, for privatisation of water supply utilities in India, starting with the major metropolitan cities and using these as leverage to open up the entire water utilities sector in the country for exploitation by multinational corporations. The latest endeavours in this regard are in the national capital following on from the successful privatisation of electricity distribution in Delhi. While the Congress government in Delhi denies that these are moves towards privatisation and claims that these are only in the nature of "sub-contracts", the fact is that these contracts are only the first steps in a carefully calibrated series of measures designed to achieve the gradual privatisation of municipal water supply. The thin end of the wedge in Delhi is the contract given to Ondeo Degremont, a subsidiary of the French multinational Suez Lyonnaise which is active in over 100 countries worldwide, to build and operate a water treatment facility and a sewage treatment plant in the capital. The Delhi projects are among 20 more similar projects in other major Indian cities funded by the World Bank or other international agencies all working towards the same goal being actively pursued not only in India but in numerous other countries all over the world. One of the major areas under discussion under the aegis of the World Trade Organisation (WTO) is the General Agreement on Trade in Services (GATS) covering sectors such as energy, telecommunications, education, tourism, transportation and water. The GATS negotiations are still on-going and are a major bone of contention especially between developing nations and the advanced capitalist countries since their goal is to liberalise trade in services and open up the sector to private companies especially MNCs. The discussions under GATS are not completely new, however, but seek to systematise and put into a global treaty framework a process which has already been underway for more than a decade in different developing countries under pressure from the IMF and the World Bank under its notorious Structural Adjustment Programmes (SAPs). Under the guise of improving efficiency, reducing governmental deficits and attracting private investments, many countries in Africa and Latin America, such as Kenya, Tunisia, Colombia, Ecuador have been pressurised into privatising public services especially, for the purposes of this article, water utilities and other water-related services, often with disastrous consequences. In the above context, a closer look at what is taking place in India, using the developments in Delhi as a case study, would be highly illuminating as to what lies ahead for the Indian people and the nature of struggles they would have to wage to retain their rights over water. SCENARIO IN DELHI Total demand of water for Delhi is estimated at about 750 MGD (million gallons daily) or 3375 MLD (million litres daily). As against this, the Delhi Jal Board (DJB) supplies about 600 MGD (2700 MLD) of treated water which corresponds to around 1670 MGD raw water received by it. The raw water received comprises about 88 per cent from surface water from the Yamuna and Ganga canals and about 12 per cent from groundwater. Delhi thus faces a minimum shortfall of about 150 MGD (675 MLD) to meet current demand not to mention the increased demand due to expansion of the city and its population which is expected to go up from the present 13.5 million to 21 million by 2020. The DJB loses about 30-40 per cent of treated water during distribution and is only able to treat and supply about 60 per cent of the raw water it receives which compares unfavourably with the 80-90 per cent international standard. It needs emphasis that DJB has reached its maximum installed capacity for water treatment which means that, even if it receives additional raw water to make up for shortfall, it would not be able to treat it unless substantial additional investment is made in increasing treatment capacity and efficiency. There are many medium and long-term projects being planned or in various stages of implementation to cover the present and future anticipated deficit, such as water from the Renuka, Keshau and Tehri dams. However, the major and only short-term "solution" being offered to the people of Delhi is the Sonia Vihar Plant being set up by the French MNC Ondeo Degremont under the aegis of the Delhi Jal Board with a capacity to supply 140 MGD (635 MLD) of treated water daily, the raw water to come from the Upper Ganga Canal of the Tehri Dam project, tapped off near Muradnagar in UP. The Sonia Vihar Project was initiated by the Delhi government pursuant to a Report prepared by Price Waterhouse Coopers (PWC), the international consultants, on “reforming” Delhi’s water supply as part of a World Bank sponsored programme and marks the beginning of privatisation of DJB and Delhi's water supply. Of course, the Congress-run Delhi government has vehemently denied that there is any move to privatise water utilities and claim that the Sonia Vihar Project is being run by the French company only as a "sub-contractor" of the DJB. The Delhi BJP leader Dr Harsh Vardhan has sharply attacked the Sheila Dikshit government for clandestinely privatising DJB and handing over a national resource to a multi-national. But the BJP-led central government’s minister of state for water resources Bijoya Chakravarty indirectly defended the Project by cleverly informing parliament that there is "no move to privatise the Ganga", a diversionary stand he was able to take due to a mis-directed campaign against the privatisation policy by some activists seeking to evoke emotive sentiments associated with the "holy Ganga" by claiming that the Sonia Vihar project is somehow “polluting” the Ganga. THE DEGREMONT SONIA VIHAR PROJECT Unfortunately, little is known or has been made public about the Project itself except its broad contours, adding to the shroud of mystery surrounding the Project and strongly suggesting that there is indeed something to hide. Degremont is to set up, run and maintain the plant over a 10-year period in what is described in the DJB website describes as a Build-Own-Operate (BOO) contract even though the Delhi government and the DJB have repeatedly stated that they, and not Degremont, own the facility. So build-operate-transfer (BOT) is perhaps a better description of the contract, especially since the DJB has paid Rs 188 crore to Degremont for setting up the plant. The Delhi government has also given Degremont a counter-guarantee of assured returns (no one knows exactly how much) for the contract period against treated water supplied from the plant along with productivity incentives to the company (Degremont is believed to have assured a 90-95 per cent ratio of treated to raw water). The contract however, seems to absolve the French MNC of any responsibility for the more difficult task of distribution or of revenue collection which will remain the responsibility of the DJB and the municipal authorities of the MCD, NDMC and Cantonment Board. The Delhi government appears to be following the World Bank-PWC suggested path of step-by-step reforms that is to first lease out or sub-contract specific service elements, then commercialise (that is gradually increase revenues to match costs until the ultimate goal of “full cost recovery” is achieved) and corporatise (bring the water utility on par with autonomous companies) along with regulation, and finally divest or privatise in one form or another. The PWC Report suggests that private sector participation in different ways and for different functions be gradually built-in because, it is argued, this would bring in better efficiency, accountability, technology and even fresh capital. The Report explicitly recommends that the process and model followed in Delhi earlier for Electricity be adopted for water also with the former finally ending up having joint ventures of the Delhi government with corporate partners who would also fully take over management functions for electricity distribution while generation and transmission remained state-sector functions but gradually being corporatised. While the Delhi government continues to deny any privatisation moves in the case of water, the measures already initiated are strongly reminiscent of measures taken towards privatisation of electricity distribution in the Capital. The Delhi government and DJB first hinted at hiking water tariffs, which are considerably lower in Delhi than in other Indian metros, but backed off for the moment in the face of public resentment. It then decided to appoint a Regulatory Commission to decide on tariffs, thus resorting to a well-known tactic to evade direct responsibility for a tariff hike which the World Bank, the PWC Report and other pro-privatisation forces are known to favour. Interestingly, the PWC Report recommends that the Regulator for water not only looks at tariffs and similar issues but also promotes private sector participation and, when this is achieved, balances private and public interests --- in other words, first bring in corporates where there are none and then, in the name of “balancing interests” ensure that corporates control the water utilities and other services, preferably in an environment where all the hazards and risks of distribution and revenue collection are borne by the state-sector along with a “balanced” half of the equity as in the notorious electricity distribution joint ventures! POTENTIAL IMPACT All this has indeed taken place in the electricity utilities in Delhi with none of the supposed benefits of privatisation. Delhi is flooded with complaints of faulty meters, over-billing and unresponsive customer service, all supposedly “natural” ills of the state sector. Faults and break-downs continue unabated and, if supply appears to be better, it is because the state-owned transmission utility is buying more power than earlier which they could have done anyway, even without the much-vaunted private distribution companies. Power losses and theft are as high as before. To top it all, the much maligned subsidy the state was earlier doling out for electricity, supposedly on account of its inefficiency, has gone up at least three times except that now the Delhi government pays this huge amount to the private distribution companies! And the Delhi Electricity Regulatory Commission has been a silent and complicit spectator. So much for private sector efficiency and accountability! The same scenario can be expected in the case of water too where the corporates, in this case MNCs, are not even entering the distribution arena in the first instance. In Delhi, where the DJB suffers from 30-40 per cent losses during distribution, much of this owing to poor maintenance and repairs, DJB has already for the past several years given this job to various private contractors who, despite having been paid huge amounts, have made no difference to the losses resulting in massive financial loss to the Delhi government. Clearly privatisation has not worked in this aspect of water services here so why should it be expected to work in others? Experience in other Indian cities has been no better either. All these cities continue to face serious water shortages even while tariffs have gone through the roof. Tariffs are many times higher than in Delhi with water-starved Chennai being almost ten times higher! So successful has the World Bank guided corporatisation of Chennai Water been that it is stated to have recovered 140 per cent of the costs incurred! These experiences suggest that the main impact on the consumer is only likely to be higher tariffs while the main benefit will go to the private, mostly MNC, corporates. TOWARDS PRIVATISATION OF ALL WATER RESOURCES So far we have spoken of privatisation of municipal water supply utilities and related services. However, a number of other measures have contributed to a virtual juggernaut rolling on towards privatisation of all water resources in the country. Groundwater, for instance, is the preserve of the state as it is a national resource like minerals and the Central Groundwater Authority (CGWA) is mandated as the custodian of all groundwater resources. However the government has allowed groundwater to become the "property" of rich property owners and others with the financial ability to invest in its extraction and distribution. With no laws specifically laying down rights over groundwater, landowners have come to assert de facto and increasingly de jure rights over sub-surface water flowing beneath their land and exploiting it at will. In the absence of proper water supply and effective regulation, groundwater is now the source of an estimated four-fifths of domestic water supply in rural areas, and around half that of urban and industrial areas, much of this being supplied by rich landowners. Increasing demand for water in urban areas is prompting landowners to sell “their” groundwater which is, in fact, a common resource. This is not only leading to sharp drops in groundwater levels and unsustainable drawals far beyond the capacity of the system to recharge, but also to growing rural-urban disparities in groundwater utilisation. Farmers in many parts of the country are reported to be abandoning agriculture in favour of better returns from groundwater! The groundwater trade is estimated at close to Rs 3000 crore today. The most glaring case which shows the fate awaiting us all is that of the Coca-Cola plant in Plachchimada in Kerala where the MNC is pumping out millions of gallons of water from the otherwise drought-prone area, and has even refused to implement the state government’s order (itself obtained only after massive public protests and litigations) to cease operations till monsoons are over, arguing in Court that the MNC has an unfettered right over the groundwater under its land! The World Bank has long argued for privatisation of water and has supported water businesses by landowners in Africa and Latin America. In India, while the BJP-led NDA government and like-minded pro-liberalistaion, pro-globalisation governments in different states deliberately look the other way or even actively connive in the process, corporates are mining precious groundwater at throwaway costs to supply all manner of industries including “purified” drinking water and aerated beverages. A fact conspicuously missing from the BJP’s “India Shining” ad campaign is “Bottled water sold in the past 50 years: Negligible --- Bottled water sold under BJP rule: over Rs 1000 crore per year”! How much more privatised, or expensive, can water get? It bears note that the NDA government’s National Water Policy adopted in 2002 explicitly states: "Private sector participation should be encouraged in planning, development and management of water resources projects for diverse uses, wherever feasible. Private sector participation may help in introducing innovative ideas, generating financial resources and introducing corporate management and improving service efficiency and accountability to users. Depending upon the specific situations, various combinations of private sector participation in building, owning, operating, leasing and transferring of water resources facilities, may be considered." Water is a precious national resource which should be under public control. But selling out the nation's wealth, infrastructure and its very natural resources has become second nature for the BJP and its allies. And several other Parties are not very far behind! |
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Disinvestment
