Govt brings blue chip PSU subsidiaries under performance scanner

The performance of subsidiaries of blue chip public sector companies may now come directly under the government’s scanner.....

Written by Gunjan Pradhan Sinha | New Delhi | Published: March 3, 2009 1:51:00 am

The performance of subsidiaries of blue chip public sector companies may now come directly under the government’s scanner. This will especially pin down high-profile arms of oil PSUs such as ONGC Videsh,Mangalore Refineries & Petrochemicals,Numaligarh Refineries and Chennai Petroleum Corporation to numerical financial and operational targets set by them in consultation with the government.

The department of public enterprises (DPE) has recently decided to include all subsidiaries in addition to parent companies while entering into a MoU at the beginning of the financial year. In the MoUs,firms agree to certain targets — operational and financial — agreed voluntarily in consultation with the ministry.

Clearly,the government wants to leave no stone unturned in monitoring the performance of state-owned entities together with their subsidiaries in the wake of the recent fraud in private sector giant Satyam. So far,the performance of subsidiaries was treated as a part of the parent company’s report card and not assessed independently.

“We have included subsidiaries which will have to sign a separate MoU with the concerned administrative departments from fiscal 2009-2010. Even though public enterprises are open to scrutiny of the CAG,Central Vigilance Commission and the CBI,the MoU helps the government to keep a vigil on their performance and nip the problem in the bud,” a government official said,adding yet another layer of scrutiny.

The decision to include subsidiaries will take the total number of companies with which the Department of Public Enterprises will have to sign MoUs to 240 compared with 150 now. Under the current system,subsidiaries were included in the over-all performance target of the parent PSU.

The MoU is a comprehensive rating mechanism and includes not just financial parameters but factors such as the extent to which the company relied on government funds in a year and whether such borrowings were warranted. It takes into account corporate governance issues,which have become more important in the current context.

Sector-specific performance parameters are also taken into account to see how the company has performed within the sector as well as compared to all other state-owned entities.

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