Memorandum of Understanding for 2017-18 onwards

1. Memorandum of Understanding for 2017-18 onwards CHENNAI 19th November, 2016 Department of Public Enterprises Ministry of Heavy Industries & Public Enterprises Government of India

2. Outline of Presentation • Proposals for MoU Guidelines 2017-18 • MoU Negotiation 2016-17 • MoU Performance Evaluation 2015-16

3. Memorandum of Understanding (MoU) MoU is a negotiated agreement and contract between the Administrative Ministry/ Department/ Holding CPSE i.e. majority shareholder and the Management of the Central Public Sector Enterprise (CPSE) on selected parameters having targets decided normally before the start of a new financial year and results evaluated at the end of the year to measure the performance. For carrying out this exercise, CPSEs would provide brief about it.

4. Purpose of MoU The purpose of the MoU is to measure the performance of the management of the CPSEs on key selected parameters against the targets set so as to increase the improvements of the critical financial indicators of the organisation.

5. Scope All CPSEs (Holding as well as Subsidiaries) are required to sign MoUs. The Apex/Holding companies will sign MoUs with their administrative Ministries/ Departments, while the Subsidiary companies will sign MoUs with their respective Apex/ Holding companies.

6. Exemption from MoU Following CPSEs may be exempted from MoU system by the Inter-Ministerial Committee (IMC): • CPSEs under liquidation where Liquidator has already been appointed. However administrative ministry would provide the list of such CPSEs to DPE along-with brief write-up. • CPSE which is not in operation or having no employees or on any other ground on the recommendation of administrative Ministry.

7. Parameters CPSEs work in various sectors under different conditions and therefore uniform parameters cannot be prescribed. In view of this, the following guidelines are laid down:- • There should be uniform parameters for measuring financial performances such as revenue from operations, operating profit and ratio of PAT/Net-worth. This would be applicable to all the CPSEs, except CPSEs which are dependent on government grant or performing functions of distribution of grant etc. e.g. Biotechnology Industry Research Assistance Council (BIRAC). Hence, 3 financial parameters have been prescribed for all the CPSEs with total weightage of 50% except for CPSEs like BIRAC.

8. Parameters…… contd. • For the remaining 50% weightage, a list of parameters have been suggested for selection depending on the sector in which the CPSE is operating. The parameters most appropriate and relevant for measuring performance shall be suggested by the Pre-Negotiation Committee (PNC) to the Inter-Ministerial Committee (IMC). However there are some CPSEs which have specific role to play or are covered under specific regulatory authority e.g. ECGC which is covered under IRDA or are performing regulatory functions e.g. POSCO. In all the cases IMC shall take appropriate decision on the suggestions made by PNC.

9. Parameters…… contd. • For CPSEs under closure/ under construction/ under reconstruction, no parameters have been suggested leaving it to the PNC to suggest the most appropriate parameter along with targets for IMC to take decisions. For such CPSEs, the emphasis should be to suggest parameters and fix targets for starting commercial operations as early as possible. For CPSEs under closure, the targets would be for ensuring time bound closure.   • Definition and basis for suggesting the parameters have been given in Annex.

10. Proposed MoU parameters for 2017-18(Suggestions invited)

11. Time-Lines for MoU 2017-18

12. MoU Score and Rating

13. Additional eligibility criteria (1) CPSEs have to essentially comply with the following conditions, failing which its MoU rating would be downgraded by one step except CPSEs in poor rating e.g. CPSEs with ‘Excellent rating’ would be treated as ‘Very Good’ and composite score shall be read as 90.00 and CPSEs with ‘Very Good rating’ would be treated as ‘Good’ and composite score shall be read as 70.00 and so on: i. Compliance of Provisions of The Companies Act, 2013 or the relevant Act under which they have been regulated (To the extent compliances are within the ambit of CPSEs). ii. In case of listed CPSEs, compliance of provisions of Listing Agreement (To the extent compliances are within the ambit of CPSEs).

14. Additional eligibility criteria (1)……contd. • Compliance of DPE Guidelines having financial implications. • No adverse observations by CAG on Annual Accounts pointing out misappropriation of funds of any amount or Over/ under statement of profit/ loss (surplus/ deficit)/ assets/ liabilities amounting to 5% of Revenue from Operation. • Holding of AGM without seeking extension of time. • Submission of Draft MoU/ MoU evaluation through administrative ministry/ department to DPE by prescribed date. • Signing of MoU as prescribed without deviation from minutes of the IMC meeting.

15. Additional eligibility criteria (2) CPSEs have also to essentially comply with the following conditions, failing which its MoU rating would be reduced by score of 1 from the composite score for non- compliance of each condition. • Compliance of Public Procurement Policy for Micro and Small Enterprises issued by M/o Micro Small and Medium Enterprises.

16. Mandatory Parameters

17. Turnover (Revenue from Operations) Where price of product is regulated by statutory authorities/ international transparent mechanism, adjustment in revenue from operations may be allowed for variation in price. As per schedule III In respect of a company other than finance company revenue from operations consist of: (a) Sale of products; (b) Sale of services; (c) Other operating revenues; Less: (d) Excise duty. In respect of a finance company, revenue from operations shall include revenue from (a) Interest income; and (b) Other income from financial services

18. Other Parameters……contd.

19. Other Parameters……contd.

20. Other Parameters……contd.

21. Other Parameters (Finance CPSEs)

22. Other Parameters (Finance CPSEs)….contd.

23. MoU Negotiation 2016-17

24. MoU Negotiation 2016-17 - Status

25. MoU Evaluation 2015-16

26. MoU Evaluation 2015-16 - Status

27. MoU Evaluation 2015-16

28. Supporting Documents Where achievements are not verifiable from annual report, CPSE may submit the same by way of resolution from Board of Directors.

30. Thank You

31. MoU Evaluation 2015-16

32. Self Performance Evaluation Report by CPSEs • CPSEs are required to submit Self evaluation Sheet on the basis of audited data along with Annual Accounts/Report, other documentary evidences in support of achievement of financial and non-financial parameters, etc. within the target date of 30 th September, 2016; • Documents submitted should be authenticated and conclusive; • Mandatory compliances of various Guidelines and entry of data as prescribed in MoU guidelines for negative marking ; • Submit actual performance of the CPSE as per the Minutes or MoU negotiation meeting . • Self evaluation sheet should be approved by Board of the CPSE and is to be submitted through its Administrative Ministry/Department by the due date; • Self Evaluation sheet includes, composite score as well as rating, as calculated by CPSE;

33. Documents to be considered in MoU Evaluation 2015-16 The following documents are to be considered by DPE during MoU Evaluation; • Minutes of the MoU Negotiation Meeting; • Signed MoU along with Annexure; • Self Evaluation Sheet submitted by CPSE through Administrative ministry/Holding CPSE ; • Following documents are required along with the self evaluation sheet ; • Annual Report & Financial statements ; • External Certificates. • Internal certificates signed by appropriate authority • Report on commitment and assistance by Admin ministry/ Department • Besides CPSE should have timely reported to the concerned for : - Report on compliance of Corporate Governance; - Compliance of DPE guidelines. - Compliance of MSME guidelines. - Compliance of CSR guidelines - Online entry for PE survey - Online entry of MoSPI (wherever applicable).

34. Internal Evaluation by DPE: Financial Parameter • Computation of financial achievements should be as per definitions given in MoU Guidelines issued by DPE and Generally Accepted Accounting Principles & rules and as per Audited Annual Accounts. • Performance against a parameter would be considered after making suitable adjustments in the target as per specific comment / recommendations as mentioned in the minutes of Negotiation meeting versus actual achievement against the parameter . • Example: Adjustment for Plant Shutdown, change in policy during the year for subsidy calculation, valuation of stock, foreign exchange rate variationetc. • If there is any inconsistency between signed MoU and Minutes of Negotiation meeting, generally minutes of negotiation meeting is considered for Evaluation .

35. Internal Evaluation by DPE: Non-Financial Parameter • Non-Financial achievements should be as per the MoU Guidelines issued by DPE and as mentioned in Minutes or MoU, so that actual performance reported is in line with as considered in MoU targets; • To the extent possible, the documents submitted in support of non-financial achievements should be independently verifiable and conclusive; • Where achievements are not verifiable from annual report, CPSE may submit the same by way of resolution from Board of Directors. • In absence of the supporting documents for Non-financial achievements, this may entail an automatic downgrading by at least one notch from the rating claimed by CPSEs in respect of the parameters for which documentary evidence have not been submitted to DPE.

36. MoU Evaluation by the IMC • DPE evaluates Self Evaluation score sheets submitted by CPSEs through Administrative Ministry/Holding CPSE and the observations and comments will be placed before IMC members; • IMC may accept the view of CPSE or Ministry or DPE or in specific circumstances may take decision independently; • Down grading :If the rating of CPSEs gets adversely affected during internal evaluation (i.e. downgrading of rating from self assessed score of CPSE and tentative score calculated by DPE), then opportunity by way of written/oral re-presentation is given to the concerned CPSE through administrative Ministry/Department.

37. MoU Evaluation by the IMC Contd ….. • Offsets: Non achievement of specific targets by CPSEs for reasons beyond the control of CPSEs with specific recommendation of the Administrative ministry, if qualified , will be examined by IMC and shall be recommended for approval of HPC. The power to permit offsets in MoU evaluation for reasons beyond the control of the CPSE (force majeure), is with the High Power Committee on MoU . • Over-achievement of Targets:It has been observed that some CPSEs under-pitch their projected targets for the coming year during MoU negotiation meeting so as to plead for soft/low targets. In such cases, during MoU evaluation DPE/ IMC may call upon the CMD of the CPSE to explain plausible reasons for such over-achievement due to under pitching of targets. • Finalization of Score & Rating :IMC shall finalize the Minutes of Evaluation Meeting and recommend MoU Scores and Ratings for approval of HPC.

38. Penal Provision (Negative marking) in MoU • Following mandatory compliances and non submission of data may be penalized up to 1 mark depending on the degree and seriousness of non-compliance. • Non-compliance of Corporate Governance • Non-Compliance for procurement as prescribed in Public Procurement policy issued by MSME • Non-Compliance to DPE Guidelines • Non-Compliance to provisions as prescribed in CSR guidelines • Non-compliance to submission of data for Public Enterprises (PE) survey, • Non-compliance to submission of data for MOSPI (if applicable)

39. Negative Marking: Corporate Governance in MoU Evaluation 2015-16 • Non-Compliance of Corporate Governance will be penalized by way of negative marking and MoU score will be increased in the following manner in accordance with DPE OM 18(8)/2005-GM, dated 22nd June, 2011. • Status of Negative Marking : • 2013-14 : 70 • 2014-15 : Nil • 2015-16 : CG Rating under Finalization

40. Negative Marking : Compliance to Public Procurement guidelines by MSME • CPSEs have to adhere to 20% procurement from MSE and 4% from SC/ST MSEs . • Status of Negative Marking : • 2013-14 : Not Applicable • 2014-15 : Nil • 2015-16 : 89 CPSE’s have submitted data 44 CPSEs have complied to 20% out of which only 03 CPSEs complied to 4% of SC/ST entrepreneurs

41. Negative Marking : Compliance to DPE guidelines MoU 2015-16 • CPSEs have to give a Certificate regarding implementation of Guidelines issued by DPE as per OM No.-DPE/14(38)/10-Fin dated 28th June, 2011. • Non compliance of DPE guidelines on the basis of certificate submitted will be penalized up to 1 mark . • Status of Negative Marking : • 2013-14 : 65 • 2014-15 : 78 • 2015-16 : 62 CPSE’s have submitted data out of which 28 have reported non compliance

42. Negative Marking : Compliance to CSR guidelines • CPSEs have to adhere to provision of CSR guidelines as per section 135 of the Companies Act 2013 . • Status of Negative Marking : • 2013-14 : Not Applicable • 2014-15 : Not Applicable • 2015-16 : 82 CPSE’s have submitted online data

43. Negative Marking : Compliance to Survey Data Entry for 2015-16 • CPSEs have to enter data for PE Survey by 30th September 2016 • Status of Negative Marking : • 2013-14 : Nil • 2014-15 : Nil • 2015-16 : 80 CPSE’s have not submitted survey data

44. Negative Marking : Compliance to Project Monitoring Data for 2015-16 • CPSEs have to enter online data every month for Rs 150 crores and above projects in OCMS system under MoSPI as per prescribed timelines . • Status of Negative Marking : • 2013-14 : Nil • 2014-15 : Nil • 2015-16 : Under Compilation

45. Receipt of MoU self evaluation report 2015-16

46. Timelines for MoU 2015-16 Evaluation • CPSEs were to submit self evaluation report latest by 30th September, 2016 through Administrative Ministry/Department to DPE; • Alongwith Self Evaluation the CPSEs are required to submit the following mandatory compliances : • Corporate governance to Management division of DPE; • Compliance to DPE guidelines to Finance division of DPE; • Compliance to CSR guidelines to CSR division of DPE; • Submission of online survey data by 30th September 2016; • Compliance to Public procurement guidelines issued by MSME to JS or DC (MSME) ; • Submission of online project monitoring data as per prescribed timelines , if applicable; OCMS system of MoSPI