Core Group To Follow Selloff Panel'S Advice Report

The core group of secretaries, headed by cabinet secretary TSR Subramanian, will not decide on divestment in any PSU unless it has been first referred to the Divestment Commission. Moreover, the group has taken an in-principle decision to broadly follow the recommendations of the commission in case of PSUs already referred to it.

The decision, if accepted by the Cabinet, will mean that 11 sick PSUs in which the industry ministry is seeking joint venture partners will have to be referred to the commission immediately. These units include Praga Tools, Bharat Heavy Plates and Vessels, Scooters India, Bharat Pumps and Compressors, National Industrial Development Corporation, Hindustan Cables and Hindustan Paper Corporation Ltd.

 

An in-principle clearance for strategic partnership in these units has already been cleared by the Cabinet though specific details of the partnership will have to be approved afresh.

So far, no PSU under the administrative control of the industry ministry has been referred to the commission since the parent ministry has been opposed to it. However, this would change if the core group's recommendations are accepted.

The core group has also ironed out procedural issues. Now, the finance ministry will move all Cabinet notes relating to disinvestment. This means that the core group secretariat has been shifted out of the industry ministry to the ministry of finance. The move was expected in view of the differences between industry minister Murasoli Maran and commission chairman G V Ramakrishna.The core group has also decided to process only PSU-specific recommendations of the commission, while the general ones have been set aside for now.

The commission has made several recommendations such as setting up a special fund outside the budget to receive the divestment proceeds and the utilisation of a percentage of the proceeds for revival of sick PSUs.

The core group has, however, accepted the recommendations of using the book building method for price fixation, a discounted offer to domestic investors and reservation of shares for small investors for wider dispersal of government stake.

The core group has deferred a decision in the case of specific PSUs, like Modern Foods and ITDC, where the commission has suggested alternative means of disinvestment such as strategic partnership or outright sale.

In such cases, the core group has decided to bring in outside consultants as the government will have to decide on whether it wants to divest controlling stake in each of these units.

The commission's recommendation wherever the offer for sale is up to 49 per cent (GAIL and MTNL). The core group has also decided to abide by the commission's recommendation where a deferment of divestment has been advised (as in RITES). In such cases, the commission has recommended the restructuring of these units as a precondition to improve selloff proceeds.

Though the core group is still evaluating half of the company-specific recommendations, its focus has been on the three PSUs selected for divestment during 1997-98, namely GAIL, MTNL and CONCOR.

Divestment in Indian Oil Corporation (IOC), which was cleared by the Cabinet for selloff last year, is also on this list but will have be put off unless the new oil sector policy is in place.

The core group has also decided to complete procedural issues such as Cabinet clearances and the appointment of merchant bankers within the next three months so that process for the current fiscal can be kicked off latest by October.

The timing of the issue and the pricing will, however, be left to market conditions. Similarly, the issue size is also subject to change since this will depend on the ruling market price of the scrip close to the actual flotation.