New Delhi: To help India’s top state-run companies meet their investment targets involving other public sector firms, the government is considering new guidelines that will allow for revising their commitments by factoring in changes in business conditions.

Review mechanism: Praful Patel. By Pradeep Gaur/Mint

After the meeting, Patel said the government is planning fresh guidelines for MoUs with a review mechanism. The guidelines will take into account delays in environmental clearances, power shortages, adverse oil price movements and raw material shortages among other hurdles, he said.

“MoUs are fixed but they are sometime unrealistic (and) targets cannot be met and that is why for these companies (there is a need to bring in) some kind of more operational flexibility and guidelines," Patel said. “In the case of maharatnas and navratnas, we propose to have a review mechanism and appeal mechanism where MoU targets can be revised if there is a change in the business environment."

Executives of maharatna firms NTPC Ltd, Oil and Natural Gas Corp. Ltd, Indian Oil Corp. Ltd, Steel Authority of India Ltd, Coal India Ltd and navratna firms including Bharat Heavy Electricals Ltd and Power Finance Corp. Ltd participated in the meeting.

The Prime Minister’s Office (PMO) in February said the government will include commitment on investments in the annual performance agreements it signs with state-run companies to pressure them to execute promised projects.

This was decided at a meeting called by the principal secretary to Prime Minister Manmohan Singh to review the investment plans of central public sector enterprises. TheIndian Express newspaper reported this on 12 February.

“It has been decided that investment plans that have been provided by the PSUs will be built into the memorandum of understanding so that they can be suitably appraised as a part of the MoU," the newspaper said, citing a PMO note.

The department of public enterprises rates each public sector firm against the MoU targets set before the beginning of the fiscal year. An “excellent" rating will allow a firm to disburse 100% of basic pay as performance-related pay to its executives; “very good", “good" and “fair" ratings will allow for 80%, 60% and 40% of basic pay, respectively.

The MoUs are signed between the Central public sector enterprises and various ministries or departments, and facilitated by the department of public enterprises.

The PMO said in its note that the heads of public sector firms are responsible for ensuring that the “projected investment plans are realized to the fullest extent" to the ministries and departments.

Patel said new guidelines are necessary because the existing ones do not take into account many factors such as fluctuations in the prices of petroleum products or the difficulties power and coal companies face because of the unavailability of coal.

“All these kinds of issues hamper the MoU targets of the maharatnas or the navratnas," Patel said. “These things will have to be looked at very objectively." The government will examine the proposals of the public sector firms and “come up with fresh guidelines in the due course," Patel said. “I feel there is substantial merit in what these companies are saying."