PSU may get right to decide on mergers

The government is set to consider a series of measures to empower public sector units to undertake mergers and acquisitions.

The Cabinet this week is slated to take up a proposal of the heavy industries ministry to enhance the powers of the 'navratnas' and the 'miniratnas'.

Senior government officials told Business Standard that the objective behind granting more power to the PSUs would be three fold "" allowing public sector oil companies to become global players, allowing for mergers and acquisitions, and revitalising the PSUs.

"The autonomy powers would allow navratna PSUs to undertake mergers and acquisitions up to a certain percentage of their networth without prior government permission," an official said.

The officials added that the proposal before the Cabinet had specified a percentage of the networth both for the company and the venture as a whole. The move will help all the nine navratnas, including ONGC, IOC, GAIL, NTPC, Bhel, MTNL and SAIL.

Also to have enhanced powers are the miniratnas though these PSUs will have more restrictions in terms of limiting mergers and acquisitions to allied areas or areas of complementary interests.

These PSUs will, however, have to obtain clearance from the board for PSUs, an official said. There are 44 PSUs with miniratna status.

The proposal also includes measures to allow PSUs access to the national investment fund to expand their capital base or their equity, officials said. The setting up of the fund from April 1, 2005, was approved by the Cabinet last week.

Though the proposal to enhance the autonomy of PSUs has been doing the rounds for some time, it could not be tabled before the Cabinet on account of the government's decision to refer the issue to a committee headed by Arjun Sengupta.

The last time the government reviewed the question of delegation of powers to PSUs was in 1997. This was when the PSUs were allowed to establish financial joint ventures, technology joint ventures or strategic alliances, to effect organisational restructuring, create and wind up board-level posts and raise debt from the domestic and international markets.

The finance ministry hasmade it clear that delegated powers would not include the power to decide about mergers. According to the present dispensation, CPSEs must take prior approval of the government. in regard to mergers or acquisitions of other business entities or major business initiatives. This is applicable to all CPSEs irrespective of their financial status, whether they are navratnas or mini-ratnas.