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OECD CONFERENCE on
Privatisation, Employment and Employees
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Central Government owned Public Sector Undertakings
No profit or No loss 1 0
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State Level Public Sector Undertakings in India
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Employment and Average Annual Emoluments in PSUs
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DISINVESTMENT POLICY, PROCEDURE AND
PROGRESS
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The beginning of the Disinvestment Process
C. No change
1. Disinvestment deferred 11
2. No disinvestment 1
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The Disinvestment Policy revisited
Phase II October 1999 onwards. The main feature of the policy
can be culled out from the 2000-2001 budget speech as follows :
To restructure and revive potentially viable PSEs
Main Features of To close down PSEs which cannot be revived
the current To bring down Government equity in all non-strategic PSEs to
Disinvestment 26% or lower, if necessary
Policy were laid out
To fully protect the interest of workers
in the 2000-01
budget speech. To put in place mechanisms to raise resources from the market
against the security of PSEs' assets for providing an adequate
Emphasis on safety-net to workers and employees
maximising value To establish a systematic policy approach to disinvestment and
realised from sale.
privatisation and to give a fresh impetus to this programme, by
setting up a new Ministry of Disinvestment
Bold initiative to
close unviable To emphasise increasingly on strategic sales of identified PSEs
PSUs which cannot To use the entire receipt from disinvestment and privatisation for
be revived, meeting expenditure in social sectors, restructuring of PSEs and
outlined. retiring public debt
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Disinvestment Process & Role of MODI
Approval by CCD
Financial bids
1 week
Selection of strategic partner & signing
of SHA & SPA
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Main Constituents
Cabinet Committee on Disinvestment (CCD)
Disinvestment13022002
Target receipt for Actual
No. of PSEs in which
Year the year (Rs. in receipts (Rs. Methodology
equity sold
crores) in crores)
The
1991-92 47 (31 in one tranche and 2,500 3,038 Minority shares sold by auction method in bundles of "very
financial 16 in other) good", "good" and "average" companies
year 2002- 1992-93 35 (in 3 tranches) 2,500 1,913 Bundling of shares abandoned. Shares sold separately for each
03 has company by auction method
started off 1993-94 3,500 Nil Equity of 7 companies sold by open auction but proceeds
received in 1994-95
well with the
closure of 1994-95 13 4,000 4,843 Sale through auctionmethod, in wchih NRIs and other persons
legally permitted to buy, hold or sell equity, allowed to
the Maruti participate
and IPCL 1995-96 5 7,000 362 Equities of 4 companies auctioned and Government piggy-
backed in the IDBI fixed price offering for the fifth company
divestments
1996-97 1 5,000 380 GDR (VSNL) in international market
1997-98 1 4,800 902 GDR (MTNL) in international market
1998-99 5 5,000 5,371 GDR (VSNL) / Domestic offerings with the participation of FIIs
(CONCOR, GAIL). Cross purchases by 3 oil sector companies
i.e. GAIL, ONGC & IOC
1999-00 3 10,000 1,829 GDR (Gail) in international market & MFIL's strategic sale.
VSNL domestic issue
2000-01 4 10,000 1,870 BALCO, KRL (CRL) & MRL through strategic sale / acquisition
2001-02 12 12,000 6,230 Strategic sale IBP, HTL, VSNL, ITDC, CMC, PPL, JESSOP,
HZL, MFIL, HCI
Total 47* 66,300 26,738
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Pace of Disinvestment
5. Nov., 2001 Hotel Ashok, Bangalore; Hotel Bodhgaya Ashok; Hotel Hasan Ashok 8
6. Jan., 2002 Hotel Ashok, Madurai 9
7. Feb., 2002 IBP ; Videsh Sanchar Nigam Limited ; Paradip Phosphates Limited ; 15
Hotel TBABR Mamallapuram; Hotel Agra Ashok; Luxmi Bilas Hotel Udiapur
8. Mar., 2002 Qutab Hotel, New Delhi; Lodi Hotel, New Delhi ; Centaur Hotel, Juhu Beach, 19
Mumbai; Centaur Rajgir
12. Jul., 2002 Hotel Airport Ashok Kolkata ; Kovalam Ashok Beach Resort ;Hotel Manali 26
Ashok
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Disinvestment Scorecard
Disinvestment13022002
The Government Reserve Price (Rs Reserve Price Bid Price (Rs Bid Price
has fared well in Name of PSU Sale P/E
mn) (Rs/Share) mn) (Rs/Share)
most instances
Lagan 20.5 - 23.9 3240 - 3790 25 4,000 Loss making
and has got a
substantial MFIL 786 8,559 1,055 11,490 Loss making
premium over the
suggested Balco 5144 46 5,515 490 19
reserve price. CMC 1089 141 1,520 1,967 12
The government has performed exceptionally well on the divestments undertaken till date
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THE IMPACT OF PRIVATISATION ON EMPLOYMENT AND
EMPLOYEES
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Work Force in India
( *Includes Central / State / Semi Government, Central / State / Semi Public Sector)
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Employment in Central Government owned Public Sector
Undertakings
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Growth in Employment
Labour Force
Labour force increased at the rate of 2.05% p.a.c.during 1983-94 and by 1.03% p.a.c. during
1994-2000
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Gap in Employment Avenues
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ROLE OF LABOUR UNIONS IN IMPLEMENTING PRIVATISATION
The disinvestment policy and procedure has been discussed and debated at several levels
with the national level Labour Unions. One such forum is the Indian Labour Conference held
annually.
Disinvestment has been one of the important topics discussed in such conferences with wide
and active participation of national level labour unions.
Apart from discussion at the national level, in each case of privatisation, discussions are
initiated with labour unions of the company at the beginning of the process in which the
disinvestment policy, the rationale behind it and the various safeguards built into the
agreements are elaborately explained to the labour unions.
The concerns of the labour regarding their service conditions, past liabilities, if any, pension
benefits, severance scheme, employees stock options, are discussed in detail and
suggestions received from the labour incorporated as best as possible.
Such interaction with the labour unions are then followed up at regular intervals as the
disinvestment process proceeds.
The disinvestment process has been supported by prominent national level Labour Unions
such as the Indian National Trade Union Congress (INTUC); even at the cutting edge level
tremendous support has been received from labour unions and now there is increased
consensus and support at the State levels as well.
This approach has had a huge impact and resulted in smooth transfer of companies.
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PRIVATISATION RESTRUCTURING AND EMPLOYEE
RETRENCHMENT ISSUES AND POLICY RESPONSES
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Protection of Employee Interests
Suitable provision related to employees interest provided for in the Shareholders Agreement
(SHA).
Best efforts clause is also incorporated in SHA mentioning the benefits given by the
Government to physically challenged persons and members of social disadvantaged categories
of the society stating that the Strategic Partner shall use its best efforts to cause the company to
provide adequate job opportunities to such persons.
The concerns among the employees, namely, retrenchment from duty, pay scales and other
service conditions are also addressed.
Companies that have been privatised have not retrenched even a single person.
Voluntary Retirement Scheme (VRS) given by the disinvested PSUs are at scales which are
normally higher or equal to the VRS given by the Government to Central Public Sector
employees.
Reduction in the workforce is a continuous process as during the last 10 years the workforce in
PSUs has reduced from 2.3 million to 1.7 million even without any privatisation or strategic sale.
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PSUs Social Benefits and Amenities
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Severance Package
Voluntary Retirement Scheme (VRS)
Model Voluntary Retirement Scheme notified by the Government was in force since 1988 till
April, 2000 and was uniformly applicable to all public sector enterprises.
New liberalised scheme of VRS notified on 5.5.2000.
3,69,277 employees opted for Voluntary Retirement Scheme (VRS) till 31.3.2001 in PSUs.
May frame their own schemes of VRS and make it attractive enough for employees to opt
for it. Compensation:-60days salary for every completed year of service may be offered
subject to the condition that such compensation will not exceed the salary for the balance
period of service left.
VRS in Marginally Profit or Loss Making PSUs
Permitted to introduce an improved VRS scheme.
Compensation :- 35 days salary for each completed year of service and 25 days per year
of service for the balance of service left till retirement subject to the condition that such
compensation will not exceed the salary for the balance period of service left.
VRS in Non-Viable Enterprises
In the non-viable enterprises facing closure, VRS will be extended as Voluntary Separation
Scheme (VSS) already approved by the Government.
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Social Safety Net Retraining, Redeployment
Of the 73,194 workers counseled, 55,374 workers were retrained upto 31.3.2001 and out of
which 19,458 have been redeployed.
Department of Public Enterprises has taken up a fresh scheme for PSUs from the year
2001-02 with a budget provision of Rs. 80 million with a target to benefit about 800 people
under the Counseling, Retraining and Redeployment Scheme.
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Experience in Employee matters post disinvestment -
Case Study
(A) Bharat Aluminium Company Ltd. (BALCO)
Introduced Voluntary Retirement Scheme (VRS) : 1675 employees applied for, but granted
to only about 400 employees working in units that have closed down.
In spite of losses of Rs 200 crore due to the strike, ex gratia payment of Rs 5000 per
employee paid.
Long-term wage agreement for a period of 5 years on 7.10.2001.
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Experience in Employee matters post disinvestment -
Case Study
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THE EFFECT OF STATE-OWNED ENTERPRISE PENSION CONSIDERATIONS
ON PRIVATISATION
In all cases of privatisation through strategic sale route, the protection of employee
interest has been of paramount consideration.
The existing service conditions of the employees are protected including any pension
obligations which the company may be having .
Mostly, past liabilities of the employees are settled prior to disinvestment.
In several cases, the strategic partner has also undertaken to meet past liabilities related
to employees.
In many cases, where the employees favoured voluntary retirement before sale, liberal
severance pay has been offered pre privatisation.
At the beginning of the process itself, discussions are held with employees and all issues
relating to service conditions, past employees liabilities etc. are settled. These are fine
tuned through further discussions as the disinvestment process proceeds.
Payment of past liabilities, VRS etc. do involve budgetary allocations by the Government
which is worked out in consultation with the Administrative Ministry and Ministry of
Finance.
It has been the experience that the value of enterprise is considerably enhanced as a
result of resolution of these issues before hand. That the Government has so far got high
value for the companies sold, one of the reasons is perhaps this.
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EMPLOYEE PARTICIPATION IN PRIVATISATION TRANSACTIONS:
POLICIES AND PERFORMANCE
In every PSU selected for disinvestment the employees are involved right from the
beginning and therefore the privatizations so far have been smooth.
As an incentive, employees are offered the companys shares at a substantial
discount to the strategic sale price/market price.
The protection to the employees built into the agreements with the strategic partner
are evolved after discussion with the employees at several stages.
There is protection against retrenchment, protection of service conditions, severance
pay in case of rationalization, protection of retirement benefits including medical
facilities post retirement etc. Though employee buy outs have not been successful
so far, these are under negotiation in several cases and the structure being worked
out.
The agreements also envisage that Government could offer stakes to employees
from its balance shares in future as well.
A great amount of transparency has been achieved in the whole process regarding
the employees.
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