The Government may ask merchant bankers selected to advise on the sell-off process to sign an ‘integrity pact’. This is to make the disinvestment process more transparent.
An integrity pact is a tool developed in 1990s by Transparency International (TI) to help Governments, businesses and civil society fight corruption in public contracting and procurements. It was introduced in India in 2006.
“This issue got prominence after competition among merchant bankers led to charging of zero or near zero fees in managing disinvestment of Government-owned companies.
In fact, the Steel Secretary has raised a question on zero or near zero fees in his letter to the Disinvestment Department after the valuation controversy in the disinvestment process of Rashtriya Ispat Nigam Ltd (RINL),” a highly placed Government source told
According to the source, the Steel Secretary has suggested that the Government could ask merchant bankers to sign an integrity pact which, inter alia , could have a clause that they are not receiving or charging any commission/fee from any agency other than the Department of Disinvestment in the entire transaction. Three Steel Ministry-administered companies (RINL, SAIL and NMDC) figure in the list of 11 companies likely to be divested this year.
The letter also said, “We feel that the system of appointment of merchant bankers needs a fresh look.” At present, the appointment is finalised on the basis of techno-commercial bids on lower fee quoted (technically known as L1). It has been observed that to become L1, merchant bankers quote a fee near zero, it added.
The merchant banker’s task involves expansive scope of work and responsibility. It includes advice about timing and modalities of public issue, filing documents with regulators, securing various statutory approvals and exemptions from SEBI, stock exchanges and Reserve Bank of India, underwriting the public issue, undertaking market research and ensuring best returns to the Government.
The letter further said, according to the source, “With such a huge scope and responsibility, it is difficult to believe that the merchant banker would charge a fee near zero. This, prima facie , raises the issue of lack of transparency in the system.”