The Chamber has prepared a paper which would be taken up for discussion at a national symposium on disinvestment imperatives on November 14 with the minister of state for disinvestment Arun Shourie attending it.

The paper suggests that the government keep its direct shareholding below the level of investment being offered to strategic bidder by divesting some portions of its equity to multilateral financing institutions, private equity funds and few select PSUs who have business interests in the PSU being disinvested. Assocham says where the disinvestment is less than 50 per cent, special measures should be taken to make the management free and autonomous. This could be done either by leasing in private management, or by creating conditions of governance in PSUs which are similar to those of the corporate sector.

The price a strategic partner is willing to pay will depend on the commitments the partner is expected to offer the consumer and to the shareholders, according to a Chamber press release.

The benefit to the consumer will depend on the degree of competition that arises after the sale. Unless the relationship between the new management and the consumers is a successful one, shareholders stand to gain little from investing in the company. The Chamber has also suggested the setting up of a regulatory authority which adopts a transparent, contract-based approach to disinvestment and privatisation to enthuse investors in the bidding process.

A contract-based approach would lend certainty to investors as it would specify in advance the service standards, initial price levels and the price adjustment mechanism. The regulator's main duty should be to monitor and enforce compliance with the terms of contract applying and if necessary the sanctions contained in the contract. The regulator's discretionary powers would be limited to those indicated in the contract.