Edits & Columns

TODAY'S COLUMNIST

Public enterprises and professional consolidation Before rushing to create a holding company for PSEs, study the Kerala experiment Y R K Reddy   Lately, there has been some discussion in international circles for public enterprise reform through centralised entities. Examples are being cited of the State-owned Assets Supervision and Administration Commission (SASAC) of China, Khazanah of Malaysia and Temasek of Singapore. The belief is that transferring states’ assets to an independent entity resolves many conflicts of interest, reduces the scope for political interference, rationalises the maze of self-defeating controls and most importantly, empowers the independent body to act swiftly, efficiently and synergistically. Khazanah holds the assets of about 40 government linked corporations, which have historically been underperforming. These companies have been put through a transformational process, which included professionalisation of the boards and senior managements, and adoption of business process reengineering, quality assurance programmes, customer relations and supply chain management. These brought about a dramatic change, and their market capitalisation soared. SASAC of China currently manages the assets of the government with a wide remit that includes appreciation of the value of such assets, restructuring, reform, strategic investments/divestments, modernising and public listing (including overseas), board and management appointments and performance monitoring. It is responsible for assets of about 700 trillion yuan (about $835 billion). Similarly, Temasek is now a global player with a portfolio of S$129 billion (about $80 billion). Are these models good for emulation in India? Some believe so. At the hypothetical level, such an entity can indeed free the enterprises from ministerial meddling, bureaucratic interference and overwhelming superintendence and accountability systems—and bring about better returns, synergies, reduced costs of capital and so on. The question is whether it will indeed be in the hands of independent, competent and objective professionals—especially when some ministers are imposing themselves crudely even in the appointment of independent directors. The current coalition situation may not be hospitable for creating an independent entity—it cannot overcome the entrenched interests and sunk costs of political parties and bureaucracy. In case the government does create such an entity, there are bound to be lobbying for top management positions. The entity will be too big and too powerful to let the opportunity pass. On the other hand, some states have shown some desire to professionalise, restructure and reform the State-Level Public Enterprises (SLPEs) without necessarily hoisting the red-rag of privatisation. Kerala has been in the news for its fresh approach, with minister E Kareem explicitly stating that political appointments will be stopped and that unprofessional management has been the main reason for their sickness. He has evidently a vision, a road map for reform with the support of the Chief Minister. Kerala has about 110 SLPEs, accounting for about 10% of the total SLPEs in the country. Kerala has been in the news for its fresh approach, with minister E Kareem explicitly stating that political appointments will be stopped and that unprofessional management has hurt The government has entrusted the tasks of recruiting CEOs and directors through open advertisements and independent handling by the Restructuring and Internal Audit Board (RIAB), a pioneer in corporate governance reform, capacity building, performance monitoring and training amongst SLPEs. It has created a pool of about 150 directors, civil servants and senior managers through an intensive corporate governance certification programme. Many of these people are in key positions to lead the reform initiatives. As implied earlier, the holding company approach will be successful only if there is a demonstrated will to professionalise operations and ringfence them. Given all this, Kerala should probably consider a holding company or special purpose vehicle (SPV) to which all the ownership rights and SLPE assets may be transferred. The minister’s vision holds the promise that the management of such an organisation will indeed be professional, competent and independent. It would be empowered to act swiftly, initiate a range of innovative strategic options, gain tremendous internal synergies and derive a slew of surprising results.

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