A recommendation to this effect has gone to the union cabinet from the finance ministry after the core group of secretaries discussed the issue threadbare and the group of ministers okayed it.

The policies and procedures for next year's divestment would, however, have to wait till the strategic sale of five state-run firms is completed. These firms include Balco, KIOCL, BRPL, MFIL and the ITDC.

The finance ministry has made it clear that the core group should commence work on examination of the manner of implementation of the strategic sale in these five state-run undertakings.

Discussion on pricing of shares of these PSUs took considerable time. Subsequent to the finance ministry recommendations, the government should accept market-based prices for sharesonce a decision to disinvest is taken. In each case, however, a reserve price should be fixed based on current and recent market conditions and the prevalent PE ratio for comparable stocks. This reserve price should be conservatively fixed, the finance ministry has recommended to the cabinet.

The ministry has also made it clear that the fixing of reserve price should be decided by the core group of secretaries and duly approved by the group of ministers.

According to the ministry, a list of companies, where disinvestment could be taken to 74 per cent, should be referred to the Disinvestment Commission after the approval of the core group of secretaries to obtain the commission's view on the extent of divestment and the time-frame in which it is to be implemented.

Both the core group and the group of ministers spent considerable time discussing pricing of the issues in the four companies approved for divestment during the current year, namely the Container corporation of India (Concor), Gas Authority ofIndia, Indian Oil Corporation and Videsh Sanchar Nigam.

The consensus was that it will not be appropriate to have a pre-determined price and would be prudent to wait for the market to determine it. Even the finance ministry is of the view that the approach to pricing needs to be flexible and pragmatic.

However, the ministry has recommended that in each case a reserve price should be fixed based on current and recent market conditions and prevalent PE ratio for comparable stocks. The reserve price, in the opinion of the finance ministry, should be conservatively fixed leaving room for improvement through the process of market price fixation via book building in which both domestic institutional investors and foreign investors can participate.

The finance ministry has agreed with the view that a portion of the equity should be reserved for domestic sale at a suitable discount to the book-built price.

Significantly, the finance ministry took the views of several merchant bankers on the contentiouspricing issue. The merchant bankers, it is learnt, consistently advised that when undertaking divestment there should not be a pre-determined price expectation in mind, independent of market conditions.