Why should Indian public sector enterprises (PSEs) be propped up in what is otherwise an international competitive bidding process? This is the question arising from Friday’s announcement of third generation, or 3G, spectrum auctions by the department of telecommunications (DoT) and Monday’s comment by the power secretary about a planned purchase of power generating boilers, turbines, etc. Both instances amount to encouraging inefficiencies in state-run companies and signal an anti-competition spirit.
Consider first the spectrum auction case. The two PSEs — BSNL and MTNL — are being given first-mover advantage as they have spectrum for offering 3G services even before the auction takes place. Then, when the auction happens, all they have to do is match the best — highest — bid from the private players that comes out of the process. In other words, they are guaranteed a spot in the marketplace as the government doesn’t think they can actually bid and win!
Worse still, the PSEs are to order equipment, price the services and begin rolling them out without any genuine business planning — spectrum will comprise a big chunk of their total costs, and surely they don’t know the outcome of the auction in advance. How then will the network be priced? This has implications for the pricing of their services; even if later with private players coming in, the pricing gets rationalized. What was DoT’s urgency to push PSEs so they scramble to order equipment now? Why could they not wait till the auction is conducted and the spectrum price for this service discovered in the market?
This leads us to the other instance. State-run NTPC and Damodar Valley Corp. will be inviting bids in an international competition for supercritical, environment-friendly generation equipment. Here, Bhel will be given preference — all it has to do is match the best — lowest — bid, even if did not turn out to be the lowest bidder. The principle behind this — preference in government procurement to PSEs — is an outdated policy. This approach adds a risk: When global demand conditions for power equipment is good, foreign players may not bid seriously for India if the opportunity size gets eroded by PSE preference. That there are huge plans for power generation capacity addition is no reason to get complacent. Capital costs, after all, are a key aspect of electricity tariffs. And the public sector dominates the generation business. Why breed inefficiency through preferential policy? Remember, Bhel has fallen way short in capacity to deliver equipment so far.
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