The three companies namely US-based Alcoa, two Indian aluminium majors, Sterlite Industries and Hindalco were expected to start the process of undertaking the due diligence exercise very soon, highly placed sources said.

The government has pruned the list of possible suitors for the company to just three from the earlier half a dozen or so names doing the rounds, they said.

When contacted, a senior official of the mines ministry confirmed shortlisting of three companies. He, however, refused to disclose names.The sources said that a number of small players were scratched from the list of probable contenders as the government felt that they were not suitable candidates for the public sector aluminium major. This leaves only the big names in the aluminium sector to contend. With this, the government seems to have rejected the claims of two other companies including BWA of Germany. Prior to this the government in consultation with the global advisor Jardine Fleming had rejected the claims of several other companies. The disinvestment of majority stake by the government in favour of a strategic player had initally attracted a lot of interest from several international players including some of the bigger names like Norsk Hydro of Sweden, Billington of UK and Kaiser Aluminium of Germany.

However, it is learnt that these players had dropped out an earlier stage as a result of differences over the proposed terms and conditions for disinvestment set forth by the government.

Balco was one of the first companies to be referred to the erstwhile Disinvestment Commission in 1997 by the government.

The commission had in its second report recommended that the government should immediately divest 40 per cent of its equity to a strategic holder, foreign or domestic, through a transparent and competitive global bidding process.

The report also called for an agreement with the strategic partner specifying that the government would, within two years, make a public offer in the domestic market of further shares to institutions, small investors and employees thereby bringing down its holdings to 26 per cent.

It added that there should be a review of the industry situation and the government may disinvest its balance equity of 26 per cent in favour of investors in the domestic market at the appropriate time.

However, the government chose to reject the recommendations of the Disinvestment Commission and instead chose to offload 51 per cent equity in favour of a strategic partner.