The provision of selling some percentage of the company's equity to employees is part of the draft shareholders agreement which will be negotiated with the prospective investors.

The shareholders agreement also states that there will be no retrenchment of labour in Balco for at least one year after the disinvestment procedure is completed. If the company decides to reduce some positions, it will have to offer a severance package not less attractive than the government approved VRS package.

The government holds a 100 per cent stake in the PSU and proposes to divest 51 per cent to a long-term strategic partner. The erstwhile Disinvestment Commission had proposed immediate divestment of 40 per cent of the equity with an agreement to reduce government holding to 26 per cent through public issue in two years.

Balco employees had protested strongly against the proposed strategic sale of the company. Their arguments was that as Balco was a profit-making company, the government should not jeopardise the future of the workers by disinvesting it.

Government officials, however, pointed out that in the last few years, only 50 per cent of Balco's profits had been on account of operating margins while the other half was due to interest earned on fixed deposits. Officials said that the real income of the company from its operations was negligible and would be wiped out if the current custom tariff of 30 per cent was brought down in the coming years due to pressures of liberalisation.

The future of Balco was under threat as the company was running on outdated technology and was making profits only because international aluminium prices were ruling high, officials said.

They added that a downturn in prices would again take the company sick to the state of sickness from which it had recovered in 1988-89.

The government's stand is that it is better to sell the company when it is earning profits to get a good deal.

Ministry officials clarified that the cash reserve of Rs 437 crore accumulated by Balco by giving less dividend to the government was too little for the modernisation of the company and was therefore used to reduce the company's equity. According to government estimates, a total of Rs 4,000 crore would be required for the modernisation and expansion of the company and it could be infused only by bringing in a strategic partner.