BackCabinet empowers PSEs to divest subsidiaries fully or partially
The Union Cabinet has said that the process for undertaking the strategic disinvestment transactions or closures to be followed by PSEs should be open, based on principles of competitive bidding and consistent with guiding principles to be laid down
PremiumNEW DELHI: The Union Cabinet Wednesday empowered the board of directors of holding or parent public sector enterprises (PSEs) to recommend and undertake the process for disinvestment or closure of their subsidiaries, units, stakes in joint ventures. The move will give PSEs more power and autonomy to decide on disinvestments of their own units, in line with the new PSE policy of 2021, and in turn save time and resources of the government.
The decision has been made applicable for strategic as well as non-strategic disinvestment and will give the flexibility or powers to boards of PSEs to take decisions in case of stake sales or full sales along with management control of their subsidiaries or units or stakes in joint ventures.
The Cabinet also delegated additional powers to the alternative mechanism to accord ‘in principle’ approval for strategic disinvestment as well as minority take sale, or closure of subsidiaries or their units and sale of stakes in joint ventures of holding or parent of Maharatna PSEs. The alternative mechanism will also review the process of disinvestment or closure. Minority stake sales have been kept out of the purview of the mechanism.
Alternative mechanism refers to an empowered group of ministers which includes the ministers of finance, road transport and highways and the respective administrative department undergoing disinvestment. A Maharatna PSE is a public sector listed entity having average annual turnover of more than ₹25,000 crore during the last three years.
“The proposal intends to reform the functioning of PSEs, by allowing greater autonomy to the Board of Directors of the holding PSEs for taking decisions and recommend for timely existing from their investment in subsidiaries / units or joint ventures (JVs), which will enable them to monetize their investment in such subsidiaries/units/JVs at an opportune time or close their loss-making and inefficient subsidiary/unit/JV at right time," the Union Cabinet said in a statement on Wednesday.
“This will result in expeditious decision making and saving of wasteful operational/financial expenditure by the PSEs," the statement added.
At present, the board of directors of holding or parent PSEs have been delegated certain powers under the Maharatna, Navratna, and Miniratna categories to make equity investment to establish financial joint ventures and wholly-owned subsidiaries and undertake mergers or acquisitions subject to certain ceilings of net-worth.
However, the boards do not have powers for disinvestment or closure of their subsidiaries or units, except some limited powers given to Maharatna PSEs for minority stake disinvestment of shareholding in their subsidiaries. Therefore, approval of the Cabinet or the Cabinet Committee on Economic Affairs was needed by the parent PSE for disinvestment in strategic disinvestment or minority stake sales or closure of their subsidiaries or units, irrespective of the size of operations or capital deployed of such subsidiaries.
The Union Cabinet has said that the process for undertaking the strategic disinvestment transactions or closures to be followed by the PSEs should be open, based on the principles of competitive bidding and consistent with the guiding principles to be laid down.
For strategic disinvestment, such guiding principles will be laid down by Department of Investment and Public Asset Management (DIPAM), while for closure, Department of Public Enterprises (DPE) shall issue guiding principles, the Cabinet said.
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