Disqualification of Star 9 Mobility: A Setback for Privatization Plans 2023
After giving it some thought, the Insolvency and Bankruptcy Board of India (IBBI) filed a case in the special court against the involved consortium member.
The privatization drive in India, aimed at boosting economic growth and efficiency, has hit a roadblock with the disqualification of winning bidders in high-profile cases. After the disqualification of bidders for Bharat Petroleum Corporation Limited (BPCL) and Container Corporation of India (CONCOR), the latest setback is the disqualification of Star 9 Mobility, the winning bidder for the privatization of Pawan Hans Limited.
These repeated disqualifications raise questions about the transparency and effectiveness of the privatization process and create uncertainty regarding the future of these state-owned enterprises.
The Indian government has pursued an aggressive privatization agenda to reduce its stake in public-sector enterprises and promote private-sector participation. The move aims to attract investments, improve operational efficiency, and reduce the fiscal burden on the government. However, the privatization process has faced several challenges and controversies.
The Centre has nullified the strategic disinvestment process of helicopter carrier Pawan Hans (PHL) and disqualified the winning bidder-consortium Star 9 Mobility due to “integrity issues,” echoing several instances in which it has failed in its efforts to privatize state-run businesses. The winning bidder was announced after the second “strategic disinvestment” process was put on hold in the previous two years.
Due to more charges against the company and the bidding procedure, the government halted the sale of its whole share in Central Electronics (CEL) in September 2022. It disqualified the winning bidder, Nandlal Finance and Leasing Private.
Star 9 Mobility, a consortium comprising Aviators India and Dubai-based Seaplane Adventures, emerged as the winning bidder for privatizing Pawan Hans Limited. Pawan Hans is India’s leading helicopter service provider with a significant presence in offshore operations, ferry services, and other specialized functions. The disqualification of Star 9 Mobility has once again cast a shadow on the privatization plans.
The Centre also cancelled the sale of fuel retailer-cum-refiner BPCL in May of last year because the selected bidders needed to submit financial offers due to shifting petroleum market dynamics and a lack of sufficient price flexibility for state-run fuel retailers.
These strategic sale processes have failed, even though there have only been a minimal number of successful privatizations in recent years and a new public sector enterprises policy calls for the government to exit most businesses while maintaining a minimal presence in a few “strategic” sectors.
The disqualification of Star 9 Mobility in the Pawan Hans case is attributed to non-compliance with specific eligibility criteria set by the government. The consortium reportedly needed to meet the net worth criteria specified in the bidding process. This disqualification raises concerns about the due diligence conducted by the authorities and the robustness of the selection process.
The disqualification of winning bidders in high-profile cases has raised several concerns and implications:
- Lack of Transparency: The repeated disqualifications indicate a need for more transparency in the privatization process. The government needs to ensure that the selection process is fair, unbiased, and transparent to maintain the confidence of investors and stakeholders.
- Investor Confidence: Disqualifications of winning bidders can dent investor confidence, making them wary of participating in future privatization bids. This can hamper the government’s efforts to attract private investment and unlock the potential of state-owned enterprises.
- Delay in Disinvestment: Disqualifications lead to delays in the disinvestment process, impacting the government’s revenue generation plans. The disinvestment proceeds are crucial for the government’s fiscal consolidation efforts and social and infrastructure development project funding.
- Impact on Employees: The uncertainty surrounding the privatization plans can cause anxiety among the employees of these state-owned enterprises. The government needs to clarify and reassure the workforce regarding their job security and welfare.
To overcome the challenges and ensure the success of the privatization process, the following steps need to be taken:
- Robust Due Diligence: The government should conduct thorough due diligence of the bidders to ensure their eligibility and financial capability. This will help avoid disqualifications and maintain the integrity of the privatization process.
- Enhanced Transparency: Transparency should be the cornerstone of the privatization process. The government should provide clear guidelines, disclose evaluation criteria, and ensure the process is conducted fairly and transparently.
- Stakeholder Engagement: The government should actively engage with stakeholders, including employees, unions, and investors, to address their concerns and clarify the privatization plans. This will help build trust and cooperation.
- Streamlined Process: The privatization process should reduce delays and complexities. The government should identify potential bottlenecks and take proactive measures to address them.
“With the approval of the alternative mechanism comprising the ministers of road transport & highways, finance, and civil aviation…has decided that the winning bidder consortium Star 9 Mobility is disqualified from the process of strategic disinvestment of Pawan Hans in terms of provisions of PIM (preliminary information memorandum) and RFP (request for proposal),” reads the decision.
The winning proposal was made by Star9 Mobility, a group chaired by Almas Global Opportunity Fund, which offered ‘211 crore for the government’s 51% ownership in the losing PHL. An empowered ministerial panel authorized Star9’s winning offer on April 29. A 49% ownership in the company, which possesses an outdated fleet of helicopters, is owned by the state-run ONGC.
However, on April 20, the National Company Law Tribunal (NCLT)’s Kolkata bench ruled against Almas Global for failing to respect its successful acquisition proposal for EMC, a power system solutions provider in Kolkata. According to section 74(3) of the Bankruptcy Code,NCLT has asked for action against the Almas management, which carries a 1–5 year prison sentence. The court found that Almas Global had “taken the process for a ride” by failing to pay around ‘568 crore to EMC’s creditors under the resolution plan it had provided and been accepted. Due to the development, The government delayed sending the consortium a letter of the award.
In the meantime, the relevant consortium member appealed the NCLT decision to the Principal Bench of The NCLAT in New Delhi refers to the National Company Law Appellate Tribunal.The NCLT ruling was to be transmitted to MCA and IBBI for their consideration on whether to file a complaint under sections 74(3) and 236 of the Indian Bankruptcy Code, 2016, after NCLAT denied the appeal and affirmed the original NCLT order, according to DIPAM.
After deliberation, the Insolvency and Bankruptcy Board of India (IBBI) complained to the special court about the consortium member. The government decided that the adverse rulings against a consortium member would result in the successful bidder’s disqualification under the requirements of PIM and RFP after reviewing the adverse orders of NCLT and NCLAT and taking note of the complaint submitted by IBBI.
According to the government’s strategic disinvestment guidelines, “Any chargesheet by any governmental authority/conviction by a court of law for an offence committed by the interested bidder or any of the consortium members or by any of their respective sister concerns or by any of their promoters, promoter group, and directors would result in disqualification.”
The opposition Congress party objected to CEL being sold to a company (for Rs 210 crore) with “no domain experience” in December 2021, alleging that CEL had been undervalued. The Ministry of Science and Technology is directing the initiative.CEL works to commercially utilize domestic innovations created by national laboratories and R&D organizations in the nation. Despite the company’s profitability (Rs 23 crore in FY21), the fact that a substantial portion of its revenues goes to other state-run organizations is considered a weakness under free-market settings.
The disqualification of winning bidders for high-profile privatization cases like BPCL, CEL, and Pawan Hans has affected the government’s privatization plans. It highlights the need for a more transparent, robust, and efficient privatization process. The government must address the concerns raised by these disqualifications and take corrective measures to instil confidence among investors and stakeholders. Only then can the privatization agenda achieve its intended goals of promoting economic growth and efficiency in India.
