Selecting a private partner to be done in a competitive basis.
The Planning Commission has worked out broad guidelines for establishing joint venture companies between public sector undertakings (PSUs) and the private sector in infrastructure that strengthen PSU interests and aim to clarify areas of uncertainty that have dogged several partnerships so far.
The draft guidelines are being prepared to provide PSUs with clear directions that they lacked so far when they sign joint venture agreements with private companies for large infrastructure projects and will be put up for Cabinet clearance soon.
| THE JOINT VENTURE CODE OF CONDUCT |
| * Select a potential private partner through an open, competitive basis with equal opportunity to competing players rather than through negotiations |
| * Disallow government officials from chairing joint ventures in which the private company has the majority shareholding |
| * Encourage public sector companies to provide grants instead of contributing to the equity of joint ventures to make a project viable |
| * Reliance on shareholders agreements should be avoided. Rights, obligations and duties should be incorporated in the concession agreement. |
| * Discourage 50-50 joint ventures |
| * Valuation of tangible and intangible assets in companies in which the public sector company's contribution in a joint venture is its assets should be approved by a competent authority such as the PIB |
The guidelines say the selection of a private sector partner must be done in an open competitive basis so as to afford equal opportunity to competing applicants and to secure the best outcome for the PSU. Selection through negotiations or on a nomination basis should normally be avoided.
The guidelines also deal elaborately on the question of whether senior government officials should chair these joint ventures. Pointing out that government officials functioning as board chairman gives the perception that the JV is a government company, the draft guidelines explain that the private sector partner may derive unintended benefits such as getting business from the ministry whose official chairs the joint venture, leading to potential areas of conflict. As a result, the guidelines say it is not advisable for government officials to chair boards or hold offices in a joint venture in which the private entity’s shareholding is 50 per cent or more.
In joint ventures in which the government is the majority shareholder, central officers should join only on a permanent absorption basis unless exempted by the competent authority.
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The guidelines also point out that it is not advisable to form 50-50 JVs, since such a company is regarded as a private company and functions as such, even though the PSU is an equal shareholder.
In many cases these entities are not accountable to Parliament or the state Assembly.
The guidelines also state that in infrastructure projects based on concession agreements between a PSU and a private party, the entire rights and obligations, duty and support should be adequately covered in the concession agreement.
In such cases, the guidelines say, no further value would accrue to the PSU through the formation of a JV or a shareholders’ agreement.
The draft guideline explains that the coexistence of a concession agreement and a shareholder agreement may give the private sector opportunities to raise disputes under both the agreements, depending on which is convenient for them.