Outlook: Another hole in the sell-off portfolio

PERHAPS IT is just as well that the smoke and mirrors in Gordon Brown's Budget concealed what appears to be a tax increase rather than the much-trumpeted tax giveaway, as it is becoming painfully obvious that the Chancellor cannot rely upon privatisation receipts to help balance the books.

The sell-offs of the Tote and air traffic control have gone deathly quiet, there is also a studied silence on British Nuclear Fuels, and John Prescott's part-privatisation of the Tube looks fraught. At this rate Ken Livingstone will get to be mayor of London before the private sector gets its hands on the Underground.

Now another little piece of the privatisation portfolio is crumbling to dust in ministers' hands. The flotation of the Commonwealth Development Corporation was never going to raise that much - perhaps pounds 500m at most, and then only if 100 per cent was sold off.

But it did have the distinction of being the first privatisation to be announced by Tony Blair after Labour gained office. What is more, it had the enthusiastic backing of the Secretary of State for International Development, Clare Short, no less - the scourge in a previous life of the Railtrack sell-off.

But that was then and this is now. Had everything gone to plan then the CDC, a vehicle for channelling funds into third-world projects, would be on the slipway to a flotation this summer. But reality has a horrible habit of upsetting the best-laid plans.

The CDC still clings to the idea of becoming a Public Private Partnership - privatisation is still too vulgar a term for some even in New Labour to countenance. However, the earliest now that anyone is pencilling in a sell-off is 2001.

You do not have to search very hard for the explanation. The Asian economic crisis and the near meltdown of many of its markets have left some deep scars on CDC's balance sheet. Last year it recorded a deficit of pounds 42m after making provisions of pounds 155m to cover bad loans resulting in a negative return on capital.

Not surprisingly, new projects last year were thin on the ground, even ones that would meet CDC's modest requirement of an 8 per cent return. Although it invested in India's first Internet service and the world's largest tilapia farm (fresh water fish, since you ask) in Costa Rica, it wisely decided not to throw good money after bad and the level of new investment fell by 20 per cent.

The tragedy is that all the while the sell-off is delayed, the third world is the poorer, since the intention is to plough back the proceeds into Ms Short's departmental budget.

No-one pretends that there aren't better returns to be had elsewhere, but that it is not the point. CDC will be floated, not as a way of maximising returns, but as a vehicle for investors with a conscience. There are limits, however, to what is saleable to even the keenest ethical investor. For the foreseeable future CDC will remain well out of range of them.