For decision making and implementation, there is a three tier mechanism in Government of India :

1. Cabinet Committee on Disinvestment (CCD)

2. Core Group of Secretaries on Disinvestment (CGD)

3. Inter-Ministerial Group (IMG)

Cabinet Committee on Disinvestment

The functions of the Committee are as follows:

1. To consider the advice of the Core Group of Secretaries regarding policy issues relating to the disinvestment programme.

2. To decide the price band for the sale of Government shares through GDR/domestic capital market route prior to the book building exercise, and to decide the final price of sale in all cases.

3. To decide the final pricing of the transaction and the strategic partner in case of strategic sales.

4. To decide on cases where there is disagreement between the recommendations of the Disinvestment Commission and the views of the Department of Disinvestment.

5. To approve the three-year rolling plan and the annual programme of disinvestment every year.

Core Group of Secretaries on Disinvestment

The Core Group of Secretaries is headed by the Cabinet Secretary and comprises of Secretaries from Ministries of Finance, Industry, Department of Disinvestment, Planning Commission and Administrative Ministry and any other Department as may be required.

The Core Group directly supervises the implementation of the decisions of all strategic sales.

The Core Group monitors the progress of implementation of the Cabinet decisions.

The Core Group makes recommendations to the CCD on disinvestment policy matters.

Inter-Ministerial Group

The Inter-Ministerial Group is chaired by Secretary, Department of Disinvestment and comprises of officers of Ministry of Finance, Department of Public Enterprises, Administrative Ministry and the CMD of the Public Sector Enterprise concerned.

The Inter-Ministerial Group is responsible for day-to-day implementation of the Disinvestment decision.

The Department of Disinvestment was set up vide Notification No.CD-551/99 dated the 10th December 1999.

Business Allocated to Department of Disinvestment:

1. All matters related to disinvestment of Central Government equity from Central Public Sector Undertakings.

2. Decisions on the recommendations of the Disinvestment Commission on the modalities of disinvestment, including restructuring.

3. Implementation of disinvestment decisions, including appointment of advisors, pricing of shares, and other terms and conditions of disinvestment.

4. Disinvestment Commission.

5. Central Public Sector Undertakings for purposes of disinvestment of Government equity only.

Advisor

Normally the disinvestment process is carried out with the assistance of an advisor.

Advisory services are provided by Merchant Bankers, but in addition the legal advisors, chartered accounts and asset valuers are also required for specific services. Environmental Auditors and Public Relations firms have also been appointed for some disinvesting CPSUs.

Advisors advise governments on all aspects of privatisation transactions. In addition to implementing the basic steps mentioned earlier, advisors also counsel governments on the strategic options open to it for privatisation. The responsibilities of the advisor, would inter-alia, cover rendering of advice and assisting government in the disinvestment of the PSU, suggesting measures to enhance sale value, preparing a detailed information memorandum, marketing of the offer, inviting and evaluating the bids, assisting during negotiations with prospective buyers, drawing up the sale/other agreements and advising on post-sale matters.

Advisors are appointed by a competitive bidding procedure. The government writes a brief Terms of Reference (TOR) for the advisors and invites expression of interest from them to submit responsive proposals. They are asked to make a presentation before the Inter Ministerial Group. The advisors offering the best technical and financial terms are hired to implement the privatisation transaction.

The fees payable to the Advisors generally consist of two components. The first components is called 'success fee' which is fixed percentage of the gross proceeds to be received by the Government from the disinvestments. Since it is directly linked with the amount of money realisible from disinvestments, it serves as an incentive to the advisor to get the best price from disinvestments.

The other component of the fee is called 'drop dead fee' which is a lump sum amount payable to the advisor only in the event of the transaction being called off by the Government.

The fees for specific transactions vary from transaction to transaction depending on various factors like mode of disinvestment, total realizable value, quantum of work required to complete the transaction, degree of difficulty and chances of success of the transaction etc. Consultants appointed for disinvestment in certain cases are also given flat/fixed/lump sum fee/asset valuation fee/out of pocket expenditure depending on different criteria.

Legal Advisor

For each privatisation, it is considered necessary to involve legal advisers who look into the legal issues and advise the government accordingly about the documentation. They help the Government in drafting and finalising various agreements.

Legal advisers examine the following documents and advise the Government on

1. Material contracts and agreements.

2. Loan and lease agreements to ensure that there are no unduly onerous conditions.

3. Title deeds to ensure that there are no defects of title or onerous conditions.

4. The adequacy of insurance cover and compliance with any legal or other requirement.

The legal advisors are selected through a process of limited competitive bidding and are paid a lump sum amount as fees.

Accounting Advisors

The Accounting Advisors review the financial accounting reporting and planning systems

They help the government in analyzing the balance sheet of the company, its assets and liabilities and contingent liabilities.

The Accounting Advisors are required to recast the final Accounts of the PSU as per the Accounting standards acceptable to the bidding parties.

The Accounting Advisers pay particular attention to the way the following items have been treated:

1. Extraordinary and exceptional items

2. Amortisation and depreciation

3. Capitalisation of expenditure

4. Recognition and turning of revenue and expenditure items

5. Basis of consolidation of subsidiaries, if any

6. Deferred taxation, and

7. Revaluation of assets.

The task includes:

Strategic evaluation of operating capability finances and post privatisation prospects of the state enterprise.

Evaluation of capital structure

A calculation of the impact of taxation on the privatised enterprise.

The accounting advisor is appointed through a process of limited competitive bidding and is paid a lump sum fees.

Asset Valuer

The asset valuation is conducted by government-approved valuers. Normally, the valuer is selected either through open advertisement or through short-listing from the list of government-approved valuers.

While assessing the fair value of the property, the valuer takes into consideration the following:

1. The status of the title of the company over land and building.

2. Any restrictive covenants incorporated in the title documents imposing limitations on the use or transfer of the property or any other restrictions.

3. Any restrictions pertaining to the use or transferability of the property or other restrictions arising from any civic regulations or Master Plan or other reasons.

4. The values at which transaction have taken place in the recent past for properties of comparable nature, in terms of use, size, location and other parameters.

5. Valuation parameters currently in use by Authorities for determination of stamp duty and other taxes.

6. Assessment of demand and supply of comparable properties at given locations.

7. The state of maintenance and depreciation of the property, and evaluation of expenditure, if any, required to repair and renovate the property to suit the intended use.

8. Terms and conditions of the proposed new lease agreements to be entered into with the lessors for the purpose of disinvestment.

The valuation of the property is done by the asset valuation methodology taking into consideration the above factors.

Valuation of Plant and Machinery
Valuation of Mines, if any.
Valuation of intangibles, if required.
Valuation of other assets.