By CL Jose
Kerala itself is keen to promote public-private-partnerships
KOCHI/March 18-2022: Instead of creating an opportunity to discuss ways to wriggle out from the financial quagmire the state is mired in, the members of the Kerala’s Legislative Assembly, both from the ruling front as well as the Opposition led by VD Satheesan, got together on Thursday to disparage the Centre’s decision to sell 5 per cent in the life insurance behemoth – LIC of India, through an IPO.
The resolution moved by the chief minister Pinarayi Vijayan against the IPO, which is basically an offer for sale (OFS), was unanimous as the cause was considered ‘of paramount importance’ by the MLAs.
The people’s representatives fear a five per cent dilution of government ownership in LIC may pave the way for an ultimate privatisation of the life insurance major that single-handedly controls almost two-thirds of the country’s life insurance market.
“Quite ironically, Kerala is a state whose most public sector undertakings (PSUs) fail to generate any profit, but rather have become a burden to the financial system by drawing on the budget allocations year after year accelerating the piling of state’s debt to almost 38 per cent of the state gross domestic product (SGDP) by now,” a public finance expert reminded.
It would take a lot of effort and right orientation for Kerala whose public sector entities are in shambles, to put its own house in order The context reminds one of Jesus Christ’s famous quote, “Do not weep for me, but weep for yourself and your children.”
As everyone knows, Kerala too has started embracing private investments into several sectors, with higher education getting special thrust in the 2022-23 budget.
Kerala has always been enthusiastic to showcase the Cochin International Airport Ltd (CIAL) as a glittering example of a successful public-private-partnership (PPP).
Kannur International Airport Ltd (KIAL) is yet another PPP model in Kerala where the state government holds close to 40 per cent stake.
Interestingly, the government has been vociferous in establishing that the state is a minority stakeholder in KIAL though the ploy was to evade CAG audit.
Centre not 100 pc owner
Coming to the centre, out of the 12 public sector banks, the Central Government holds less than 85 per cent ownership in seven banks, with the largest lender, State Bank of India (SBI), being owned by the Centre to the extent of only 55 per cent.
About two-thirds of the large financial institutions in the developed markets (Excepting China – Despite several IPOs launched by specialised banks at different degrees of divestment, in China, the banks are still majority owned by the Chinese Government) are in private sector.
It’s a plain fact that Kerala’s finances are not in good shape, with the exchequer finding itself neck deep in debt. Out of the scores of public sector undertakings wholly owned by the government, only a few that can be counted on the fingers of one hand, manage to keep their heads above water.
KSEBL, KSRTC, Kochi Metro
What is the financial status of the more prominent and prestigious ones from the stable, such as KSEBL, KSRTC, Kochi Metro, Kerala Bank, etc?
All these government-owned enterprises are guzzling public money just ‘welfaring’ thousands of their employees and ‘accommodating’ dozens as ornamental heads at these proverbial white elephants.
While KSEBL’s accumulated losses have crossed Rs14,000 crore, the whole equity of the company has been wiped out landing the company in Rs11,000 crore negative net worth.
KSRTC has posted yet another loss of Rs1960 crore for 2020-21 whereas its Rs3000 odd crore loans have been downgraded four notches by the rating agency to ‘junk status’ to D rating.
Kochi Metro having completed four years of commercial operations still fails to generate enough revenue to even pay interest on its borrowings.
KIAL has posted close to Rs140 crore loss for 2019-20 and the losses are getting accumulated by the year. KIAL has not announced its financials for the year 2020-21, though closing of 2021-22 is hardly two weeks away.
Transparency, accountability
Once public is allowed to buy into the ownership of a company, it automatically comes under the radar of regulator’s scrutiny. Each and every decision needs to be vetted by the board and ratified by the shareholders.
“In fact, opening up ownership to the public as is envisaged in LIC now, though in very small quantity, the running of the company will improve a lot qualitatively,” notes Dr VK Vijay Kumar, chief investment strategist with Geojit Financial Services.
Stating that transparency in decisions and accountability of the management will essentially improve a lot in a public limited company, Vijay Kumar added that timely reporting of company’s financials is mandatory for a publicly listed company.
And the failure of which not only could attract penalty for the company, it might lead to the disqualification of directors.
“How many government-owned companies in Kerala can claim to possess these attributes?”
No PSU company in the state comes out with its financials within the prescribed time limit set by the Ministry of Corporate Affairs (MCA). Most companies will have two or even three-year-old audited financial reports pending to be published.
But once listed on a stock market, the companies are mandatorily required to file unaudited financials each quarter with the stock market.
More importantly, these companies are required to constitute a professional board of directors, and every price-sensitive development in the company needs to be reported to the stock markets, where their shares are listed.
These checks and balances inherent with the system will not only help such companies to run more professionally, but more importantly, will help them raise funding from the market much easier than their counterparts that do not ensure transparency and accountability.
