COMMERCE AND INDUSTRIES DEPARTMENT

GOVERNMENT OF SIKKIM

DISINVESTMENT POLICY 2003 FOR STATE OF SIKKIM

 Objective -

The primary objectives for disinvesting/privatising the Public Sector Undertakings are as follows:

·       Releasing large amount of public resources locked up in non-productive PSUs, for redeployment in areas that are much higher on the social priority, such as, basic health, family welfare, primary education and social and essential infrastructure;

·       Stemming further outflow of scarce public resources for sustaining the unviable PSUs;

·       Reducing the public debt that is threatening to assume unmanageable proportions; 

·      Transferring the commercial risk, to which the taxpayers’ money locked up in the public sector is exposed, to the private sector wherever the private sector is willing and able to step in. The money that is deployed in the PSUs is really the public money and is exposed to an entirely avoidable and needless risk, in most cases; 

·      Releasing other tangible and intangible resources, such as, large manpower currently locked up in managing the PSUs, and their time and energy, for redeployment in high priority social sectors that are short of such resources.

Other benefits expected from privatisation -

·      Disinvestments would expose the privatised companies to market discipline, thereby forcing them to become more efficient and survive or cease on their own financial and economic strength. They would be able to respond to the market forces much faster and cater to their business needs in a more professional manner. It would also facilitate in freeing such companies from Government control and introduce corporate governance in the privatised companies.

·      Disinvestments should result in wider distribution of wealth through offering of shares of privatised companies to small investors.

·      Opening up the public sector to appropriate private investment would increase economic activity and have an overall beneficial effect on the economy, employment and tax revenues in the medium to long term.

The main objective of disinvestment is to put state resources and assets to optimal use and in particular to unleash the productive potential inherent in our public sector enterprises.

Government would continue to ensure that disinvestment does not result in alienation of state assets, which, through the process of disinvestment, remain where they are. It will also ensure that disinvestment does not result in private monopolies.

Disinvestment is not merely for mobilizing revenues for the Government, it is mainly for unlocking the productive potential of these undertakings, and for reorienting the Government, away from business and towards the business of governance.

Disinvestment/privatization will be carried out in a fair/legal/transparent manner. 

Rationale -

The Public sector has played a laudable role in enabling our state to achieve the objective of self-reliance. However, the significantly changed economic environment that now prevails both in the state and the country makes it imperative for both the public sector and the private sector to become competitive. Learning from our experience, especially over the last decade, it is evident that disinvestment in public sector enterprises is no longer a matter of choice, but an imperative. The prolonged fiscal haemorrhage from the majority of these enterprises cannot be sustained any longer. . The disinvestment, would insure the availability of resources for other purposes which are at present are being pumped into these enterprises without any return.

The public sector has played a vital role in the development of our economy. However, the nature of this role cannot remain frozen to what it was conceived years ago - a time when the technological landscape, and the domestic and national economic environment were so very different. The private sector in state has come of age, contributing substantially to our state building process. Therefore, both the public sector and private sector need to be viewed as mutually complementary parts of the industrial sector. The private sector must assume greater public responsibilities just as the public sector needs to focus more on achieving results in a highly competitive market. Most of the public enterprises have accumulated huge losses. With public finances under intense pressure, State Government is just not able to sustain them much longer. Accordingly, the State Government is compelled to embark on a programme of disinvestment.

There are many PSUs, which are sick and not capable of being revived. The only remaining option is to close down these undertakings after providing an acceptable safety net for the employees and workers.  The entire proceeds from disinvestment/ privatisation would be deployed in social sectors and retirement of public debt.  The public sector has overgrown itself and their shortcomings have manifested in the shape of low capacity utilization and low efficiency due to over manning and poor work ethics, over capitalisation due to substantial time and cost overruns, inability to innovate, take quick and timely decisions, large interference in decision making process etc.

Because of the current revenue expenditure on items such as interest payments, wages and salaries of Government employees and subsidies, the Government is left with hardly any surplus for capital expenditure on social and physical infrastructure. While the Government would like to spend on basic education, primary health and family welfare, large amount of resources are blocked in several PSUs. Not only this - the continued existence of the PSUs is forcing the Government to commit further resources for the sustenance of many non-viable PSUs. The Government continues to expose the taxpayers' money to risk, which it can readily avoid. To top it all, there is a huge amount of debt overhang, which needs to be serviced and reduced before money is available to invest in infrastructure. All this makes disinvestment of the Government stake in the PSUs  absolutely imperative.

The criteria for disinvestment/privatization -

Government would disinvest/Privatize public sector undertakings, which are making losses for last three years.

OR

Government would disinvest/Privatize public sector undertakings, which have not paid dividends to the Government of Sikkim for last three years.

OR

Government would disinvest/Privatize public sector undertakings from which the return on investments is less than the prime-lending rate of the Nationalized Banks.

For the existing employees of the Public Sector Undertakings, Job security/ opportunities for retraining and redeployment will be assured. Interests of workers will be fully protected through attractive VRS and other measures.

Procedure -

The procedure to be followed by Government of Sikkim for disinvestment/privatization seeks to promote administrative simplicity and speed of decision-making without compromising on transparency and fair play.

The process will be as follows-

·        Proposals for disinvestment/privatization in any PSU, based on the recommendations of the Administrative Department will be placed for consideration of the State Govt. through the Minister in charge of the concerned PSU.

·        After the State Govt. clears the disinvestment proposal, the valuation of    the current assets of the PSU will be done by the concerned technical departments of Government of Sikkim. The value of the current assets so calculated will serve as the floor/ reserve price for the purpose of bidding.

·      Bidders will be invited through advertisement in newspapers/website to submit their Expression of Interest (EOI) in the first stage.  After receipt of the Expression of Interest (EOI), in pursuance of Advertisement in newspapers / website, a list of bidders will be prepared.

·      The bidders will undertake due diligence of the PSU and hold discussions with the Administrative Department/the representatives of the PSU for any clarifications.

·      Now the bidders will be asked to submit their financial offers. Based on the highest offer received from the prospective bidders, the Sale Agreement/Lease Agreement will be finalised by the Administrative Department. After getting the Sale Agreement/Lease Agreement vetted by the Department of Law, the Sale Agreement will be approved by the Government.

·      After the transaction is completed, copies of all papers and documents relating to it will be sent to Finance Department of the state for reference and record.