Public sector undertakings (PSUs) would soon have new criteria for the evaluation of their financial and non-financial performance, including accountability and autonomy. The working group, headed by Ashok Chandra, to review the

MoU guidelines has submitted its report and suggested that weightage for oil and coal PSUs, working under administered pricing mechanism constraints, is reduced to 40% from 50% to help them tide over the financial mess they have gone through.

Suggesting amendments in the existing MoU structure, the report has suggested introduction of a new methodology?standard deviation method?which will be used to benchmark the performance of a PSU. The MoU is a document between the CPSEs and the government that helps evaluate the performance of the CPSEs based on the annual targets set by the PSEs, in the MoU.

?The new APM format has been introduced to address the problems of PSUs operating in the oil and coal sector. Oil and coal PSUs like ONGC, HPCL and SAIL has been demanding changes in the weightage for sometime now,? the official said. The weightage of financial parameters for PSUs operating in social sector will be 30%.

The report has recommended ?offset parameters?, which means benchmarking the performance of a PSU against the performance of the entire sector it operates in during the particular assessment year. This will be relevant during the time of evaluation to counter the performance or non-performance of a company, due to the external environment. The weightage of offset parameters has been restricted to 20%.

The report will be placed before the Cabinet secretary next week. Once cleared by him, the department of public enterprises (DPE) will issue the new guidelines which the PSUs will have to adopt by March 31, 2009, a DPE official said.

The MoU system was first introduced in India in 1986, following the recommendations made by the Arjun Sengupta Committee Report, 1984. The system was revamped in 1989 and resembled the signalling system used in Pakistan and Korea under which, performance evaluation is based on the annual targets agreed upon between the government and the CPSEs.

In 2003, the National Council of Applied Economic Research (NCAER) reviewed the criteria for performance evaluation and suggested changes in the weight allocation for different performance parametres and introduced the balance score card approach under which equal weights (50%) were given to both financial and non-financial parameters.

The principal components used to evaluate the performance include financial parameters (50%), non-financial parameters (50%), dynamic parameters (30%), enterprise-specific parameter (10%) and sector-specific parameter (10%). The performance evaluation under the MoU system is followed by performance incentive which could be monetary or non-monetary in the form of MoU excellence award and MoU exece llence certificate.

In 2007-08, 143 CPSEs such as Bharat Petroleum Corporation Limited (BPCL), Oil India Limited (OIL), Coal India Limited (CIL) and Power Finance Corporation (PFC) signed the MOU.