World Class Management of Public Enterprises in India

BHASKAR CHATTERJEESECRETARY

Department of Public Enterprises Government of India

15 June, 2010, Ljubljana

ROLE OF DPE IN GOVERNMENT OF INDIA• Public Sector Enterprises in India are under the

administrative control of 38 different ministries/departments.

• Department of Public Enterprises acts as the nodal agency for all PSEs and formulates overall policy.

• It lays down guidelines on performance evaluation, autonomy and financial delegation, personnel management and related sectors.

• It collects, evaluates and maintains information on key areas.

• It coordinates with other Ministries, PSEs and concerned organisations. 2

CURRENT PROFILE OF PSEs No. of PSEs (as on 31.3.2010) 246

Operating PSEs 213

Total Investment in PSEs 105.8 (US $ Billions) Total Turnover 252.7 (- do -) Total Net Profit 16.8 (- do -)

Total Dividend Declared 5.1 (- do -) Contribution to Government 30.3 (- do -) No. of Employees 1.6 Million 3

PSE SCORECARD

• 242 PSEs, 41 listed, 22 sectors• 41= 20% of market cap of Bombay Stock

Exchange(BSE)• Dominates in utilities, transportation, coal, oil, gas• Significant in steel, fertilizer, aluminium, copper

and electricity machinery• Produces 8% of GDP on value added basis• 25% of GDP in gross sales• 2% of GDP in profit terms

STORY OF GROWTH • Started with 5 PSEs with investment of Rs.

290 million ($ 6.3 million) in1956.• Has grown to 246 PSEs with an investment of

Rs. 5,289 billion ($117 billion) as on 31.3.2009.

• Impressive expansion in last decade - Capital employed grew from Rs. 2,500 billion ($ 55 billion) in 1997-98 to Rs. 7,930 billion ($ 176 billion) in 2008-09,

• So, 13% annually 5

• Internal generation of resources by Indian PSEs grew from Rs. 321 billion ($ 7 billion) in 1997-98 to Rs. 1,108 billion ($ 24 billion) in 2008-09, on annual growth of 12.2%

• Contribution of PSEs to Indian Exchequer (besides proceeds from disinvestment) increased from Rs. 482 billion ($ 10.7 billion) in 1997-98 to Rs. 1,852 billion ($ 41 billion) in 2008-09 - annual growth rate over 14%

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THE GROWTH STORY CONTD…

GROWTH STORY CONTD……• PSEs, forming less than 1% of all listed

companies, are currently estimated to contribute over 26% of the total Bombay Stock Exchange market capitalisation. In 2007-08 when BSE sensex increased by 20%, the market cap of quoted PSES increased in value by 65%.

• The 2009 Forbes Global list of 2000 companies included 47 Indian companies which included 25 PSEs.

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GROWTH STORY CONTD …

• Value added by PSEs, direct contribution to GDP, has been increasing substantially. During the period 2004-05 to 2008-09 the increase was of the order of 34%.• The PSEs have made investment overseas

on their own besides expanding operations and have succeeded in meeting global challenges.

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PSEs AS WEALTH CREATORS(1990-91 TO 2008-09)

Expansion in Multiples• Equity capital 2.21• Gross block** 8.17• Manpower 0.69• Net worth 9.69• Turnover 10.65• Net profit 37.07• Contribution to exchequer 7.77• Forex earning* 9.96

(*) Earnings only from exports(**) Original cost of assets 9

SECTOR-WISE INVESTMENT IN PSEs

Sector Share of the Total (%) Services 46.12 Power/Electricity 26.19 Manufacturing 18.07 Mining 08.76 Agriculture 00.05 Enterprises yet to start operation 00.81

Total 100.0010

POLICY LANDMARKS

• 1956 Industrial Policy Resolution – The Planning process initiated.

• New strategies for the Public Sector outlined in the Policy Statements in the years 1973, 1977 and 1980.

• 1991 - a watershed year heralded liberalization of Indian economy by Industrial Policy of 1991.

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• Chronically loss-making companies will either be sold-off or closed - after all workers have got their legitimate dues and compensation.

• Private industry will be inducted to turn-around companies that have potential for revival.

• Privatization revenues will be used for designated social sector schemes.

• While the Government will retain majority shareholding and control, it will develop a roadmap for listing and people-ownership of public sector undertakings while ensuring that Government equity does not fall below 51%.

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CURRENT POLICY FRAMEWORK

DISINVESTMENT OF PSEs IN 2009-10

• In implementation of its disinvestment policy the Indian Government raised about Rs. 315 billion ($7 billion) through disinvestment in the following PSEs:- –National Thermal Power Corporation–National Mineral Development Corporation –Oil India Ltd.–National Hydroelectric Power Corporation–UCO Bank

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DISINVESTMENT - LATEST POLICY THRUST• Securities contracts (Regulation) Rules 1957

of India amended to make minimum public-holding at 25% for listed companies mandatory (in line with practice followed in countries like UK, Singapore, Hongkong).

• Out of 4500 listed companies in India about 234 companies would have to offload stake (in phases) to meet the new norms. Out of 234 companies, 35 are Public Sector Enterprises (PSEs). 14

• Entire exercise could necessitate sale of shares worth Rs. 2,000 billion ($44.44 billion). PSE shares on offer alone could account for half of this amount (at current prices)

• In the first year itself (2010-11) the exercise could result in sale of shares worth Rs. 600 billion out of which PSE shares to account for Rs. 400 billion ($8.9 billion) on listed companies.

DISINVESTMENT - LATEST POLICY THRUST

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–Minerals and Metals Trading Corporation (MMTC)–Hindustan Copper Limited (HCL)–Neyveli Lignite Corporation(NLC)–National Mineral Development Corporation

(NMDC)– Steel Authority of India (SAIL)–National Thermal Power Corporation (NTPC)– Indian Oil Corporation (IOC)–National Aluminum Corporation (NALCO)

BIG TICKET OFFERINGS IN PIPELINE

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MEMORANDUM OF UNDERSTANDING (MOU) SYSTEM

• Negotiated document between Government and PSEs for performance targets.

• Task Force, a body of Independent Experts finalizes the targets for PSEs and evaluates their performance

• All PSEs brought under the ambit of MoU System

• Performance Related Pay (PRP) comes into force .

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CLASSIFICATION OF PSEs - MINIRATNA• For qualifying as Miniratna the PSE:– should be profit making for the last 3 years

continuously and should have positive net worth, – should not have defaulted in repayment of

loans/interest payment on loans due to government, – should not depend upon budgetary support or

government guarantee, and –Board is restructured by inducting at least 3

non-official Directors. 18

MINIRATNA PSEs – Nos. and POWERS

• There are 62 Miniratna PSEs

• Miniratna PSEs have powers for capital expenditure, investment in Joint Ventures / Subsidiaries in India, HRD, Mergers and acquisitions, etc. 19

NAVARATNA AND MAHARATNA

• Two categories introduced for greater autonomy and more efficient functioning:

• NAVARATNA – Should have obtained three excellent or V. Good MOU ratings in the last 5 years

- Minimum 4 independent Directors - At least 60% score on financial parameters

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MAHARATNAS• Must be a Navaratna Company• Average Turnover of Last 3 Years – $ 5 Billion• Average Net Worth over Last 3 Years - $ 3

Billion• Average Net Profit over Last 3 Years - $ 1

Billion• Significant Global Operations• Listing on National Stock Exchange

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NAVARATNA / MAHARATNA CONTD.

• Grant of ‘Navaratna/ Maharatna status’ to PSEs is

also an extension of the MoU system. Consistently

good performance in the MoU rating is essential .

• While the MoU system provides ‘operational

autonomy’, the Navaratna/ Maharatna status

gives ‘strategic autonomy’ for making investment

decisions, decisions for diversification and for joint

ventures (JVs) etc. 22

PUBLIC ENTERPRISES SURVEY ON PSEs

• Published by DPE Every Year and placed before Parliament;• Contains macro-appraisal of PSEs in

terms of broad physical and financial parameters.• Contains performance analysis of PSEs in

different sectoral groups and of individual enterprises. 23

NEW INITIATIVES - CORPORATE GOVERNANCE

• Applicable to both listed and unlisted PSEs• Covers issues such as composition and role of

Board of Directors, Audit Committee, Disclosures, Subsidiary companies, code of conduct, etc.

• It also provisions dealing with issues such as right to information, model code of business conduct and ethics for board members and senior management and risk management

• Provides for grading of PSEs on the basis of their compliance of guidelines.

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NEW INITIATIVES – CORPORATE SOCIAL RESPONSIBILITY (CSR)

• Comprehensive guidelines issued in 2010• A specified % of previous years’ profit to be spent

mandatorily by profit making PSEs on CSR activities;• CSR activities aim at sustainable development

involving people, planet and profits;• CSR activities to be in line with the long term business

plan of the PSE;• Documentation, research, monitoring to be the

integral part of the CSR project;• CSR to be in the project mode with a definite

developmental goal - no adhoc approach. 25

INDIAN PSEs IN THE INTERNATIONAL ARENA

• ONGC Videsh Ltd.–Recently acquired Oil fields including that of

Imperial Energy, Russia and San Cristobal, Venezuela;–Has presence in countries such as Columbia,

Brazil, Egypt, Sudan, Vietnam Syria, etc. • Bharat Heavy Electronic Ltd.–Has 50-50 Joint Ventures with GE Pacific,

Mauritius and Siemens AG, Germany26

• IRCON International Ltd.– Has project offices in Afghanistan, Bangladesh,

Ethiopia, Malaysia, Mozambique, Nepal and Sharjah– Has Joint Venture with Companhia Dos Caminhos De

Ferro Da Beira of Mozambique• Engineers India Ltd.– Has Engineering office in Abu Dabi – Has an inspection office in London– Has a wholly owned subsidiary EIL Asia Pacific in

Malaysia.27

INDIAN PSEs IN THE INTERNATIONAL ARENA

• Telecommunications Consultants India Ltd.– Has 12 overseas based offices/branches– Has JVs like TCIL Saudi Company Ltd and United

Telecom Ltd. Nepal.– Has one foreign subsidiary namely TCIL Oman LLC with

an equity holding of 70%• GAIL India Ltd.– Has a subsidiary GAIL Global (Singapore) Pvt. Ltd.– Has established its CNG and city gas presence in Egypt

through equity participation – Has acquired stake in China Gas Holdings for CNG

opportunities in mainland China. 28

INDIAN PSEs IN THE INTERNATIONAL ARENA

• National Thermal Power Corporation Ltd. (NTPC Ltd)– Has undertaken consultancy

projects in Dubai, Nepal, Tanzania, Kuwait and UAE

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INDIAN PSEs IN INTERNATIONAL ARENA

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