Memorandum of Understanding
for 2017-18 onwards
CHENNAI
19th November, 2016
Department of Public Enterprises
Ministry of Heavy Industries & Public Enterprises
Government of India
1

Outline of Presentation
• Proposals for MoU Guidelines 2017-18
• MoU Negotiation 2016-17
• MoU Performance Evaluation 2015-16
2

Memorandum of Understanding (MoU)
MoU is a negotiated agreement and contract between
the Administrative Ministry/ Department/ Holding
CPSE i.e. majority shareholder and the Management of
the Central Public Sector Enterprise (CPSE) on selected
parameters having targets decided normally before the
start of a new financial year and results evaluated at the
end of the year to measure the performance. For
carrying out this exercise, CPSEs would provide brief
about it.
3

Purpose of MoU
The purpose of the MoU is to measure the
performance of the management of the CPSEs
on key selected parameters against the targets
set so as to increase the improvements of the
critical financial indicators of the organisation.
4

Scope
All CPSEs (Holding as well as Subsidiaries) are
required to sign MoUs. The Apex/Holding
companies will sign MoUs with their
administrative Ministries/ Departments, while
the Subsidiary companies will sign MoUs with
their respective Apex/ Holding companies.
5

Exemption from MoU
Following CPSEs may be exempted from MoU system
by the Inter-Ministerial Committee (IMC):
• CPSEs under liquidation where Liquidator has
already been appointed. However administrative
ministry would provide the list of such CPSEs to DPE
along-with brief write-up.
• CPSE which is not in operation or having no
employees or on any other ground on the
recommendation of administrative Ministry.
6

Parameters
CPSEs work in various sectors under different
conditions and therefore uniform parameters cannot
be prescribed. In view of this, the following guidelines
are laid down:-
• There should be uniform parameters for measuring financial
performances such as revenue from operations, operating
profit and ratio of PAT/Net-worth. This would be applicable to
all the CPSEs, except CPSEs which are dependent on
government grant or performing functions of distribution of
grant etc. e.g. Biotechnology Industry Research Assistance
Council (BIRAC). Hence, 3 financial parameters have been
prescribed for all the CPSEs with total weightage of 50%
except for CPSEs like BIRAC.
7

Parameters…… contd.
• For the remaining 50% weightage, a list of parameters have
been suggested for selection depending on the sector in which
the CPSE is operating. The parameters most appropriate and
relevant for measuring performance shall be suggested by the
Pre-Negotiation Committee (PNC) to the Inter-Ministerial
Committee (IMC). However there are some CPSEs which
have specific role to play or are covered under specific
regulatory authority e.g. ECGC which is covered under IRDA
or are performing regulatory functions e.g. POSCO. In all the
cases IMC shall take appropriate decision on the suggestions
made by PNC.
8

Parameters…… contd.
• For CPSEs under closure/ under construction/ under
reconstruction, no parameters have been suggested leaving it
to the PNC to suggest the most appropriate parameter along
with targets for IMC to take decisions. For such CPSEs, the
emphasis should be to suggest parameters and fix targets for
starting commercial operations as early as possible. For
CPSEs under closure, the targets would be for ensuring time
bound closure.
• Definition and basis for suggesting the parameters have been
given in Annex.
9

Proposed MoU parameters for 2017-18
(Suggestions invited)
10

Time-Lines for MoU 2017-18
11
Documents Prescribed Date
The draft MoU to administrative
Ministry/ Department
21st November, 2016
The draft MoU to DPE after the
approval of administrative
Ministry/ Department
5th December, 2016
Signing of MoU as per Minutes
of IMC meeting
31st March, 2017 or 21
days from issue of
minutes whichever is
later.
Performance evaluation reports to
DPE after approval of the Board
and through the administrative
Ministries/ Departments
30th September, 2017

MoU Score and Rating
Consolidated Score Rating
More
than
Equal to or
less than
90 100 Excellent
70 90 Very Good
50 70 Good
33 50 Fair
0 33 Poor
12

Additional eligibility criteria (1)
CPSEs have to essentially comply with the following
conditions, failing which its MoU rating would be
downgraded by one step except CPSEs in poor rating e.g.
CPSEs with ‘Excellent rating’ would be treated as ‘Very
Good’ and composite score shall be read as 90.00 and CPSEs
with ‘Very Good rating’ would be treated as ‘Good’ and
composite score shall be read as 70.00 and so on:
i. Compliance of Provisions of The Companies Act, 2013 or
the relevant Act under which they have been regulated (To
the extent compliances are within the ambit of CPSEs).
ii. In case of listed CPSEs, compliance of provisions of
Listing Agreement (To the extent compliances are within
the ambit of CPSEs).
13

Additional eligibility criteria (1)……contd.
iii. Compliance of DPE Guidelines having financial
implications.
iv. No adverse observations by CAG on Annual Accounts
pointing out misappropriation of funds of any amount or
Over/ under statement of profit/ loss (surplus/ deficit)/ assets/
liabilities amounting to 5% of Revenue from Operation.
v. Holding of AGM without seeking extension of time.
vi. Submission of Draft MoU/ MoU evaluation through
administrative ministry/ department to DPE by prescribed
date.
vii. Signing of MoU as prescribed without deviation from
minutes of the IMC meeting.
14

Additional eligibility criteria (2)
CPSEs have also to essentially comply with the following
conditions, failing which its MoU rating would be reduced by
score of 1 from the composite score for non- compliance of each
condition.
• Compliance of Public Procurement Policy for Micro and Small
Enterprises issued by M/o Micro Small and Medium
Enterprises.
15

Mandatory Parameters
Sl. Financial Performance Criteria Unit Wt
i Turnover
Revenue from Operations (Net)
Rs.
crore 10
ii Operating Profit/Loss (Profit/ Surplus before Tax excluding other
Income, Extraordinary and Exceptional Items):
CPSEs with operating profit :-
Operating profit/ surplus as a percentage of Revenue
from operations (net). % 20
CPSEs with operating Loss:-
Reduction in operating Loss over previous year.
iii Return on investment:
Profit Earning CPSEs :
PAT or Surplus / Average Net Worth
% 20
Loss making CPSEs :
Reduction in Total Expenses as a percentage of Total
Income as compared to previous year.
16

Turnover (Revenue from Operations)
Where price of product is regulated by statutory authorities/
international transparent mechanism, adjustment in revenue from
operations may be allowed for variation in price.
As per schedule III In respect of a company other than finance
company revenue from operations consist of: (a) Sale of
products; (b) Sale of services; (c) Other operating revenues;
Less: (d) Excise duty. In respect of a finance company, revenue
from operations shall include revenue from (a) Interest income;
and (b) Other income from financial services
17

Other Parameters……contd.
Sl. Performance Criteria Unit Wt
i Capacity Utilisation
Production/ Generation/ Transmission, etc.
Orders Received during the year
%
0-15
May not apply to CPSEs in trading, heavy engineering etc.
ii CAPEX:
a. with own funds and by loan by leveraging net-worth Rs.
crore
0-20
a. with Budgetary Support 0-10
iii Percentages of value of CAPEX contracts/ projects
running/ completed during the year without time/ cost
overrun to total value of CAPEX contracts running/
completed during the year
% 0-10
May not apply to CPSEs in consultancy, trading, marketing etc.
18

Other Parameters……contd.
Sl. Performance Criteria Unit Wt
iv
Completion of clients orders milestone without time
overrun
0-30
May apply to CPSEs in Consultancy, Heavy Engineering, Defence
Production, Pharmaceutical Sectors
v
Inventory of finished goods and work in progress to
Revenue from operations (Net)
% 0-10
May apply to CPSEs in Manufacturing, Trading, Fertilizers, Heavy
Engineering, Consumer Goods Sectors
vi Reduction in Inventory of more than one year old % 0-10
May apply to CPSEs in Trading, Marketing Sectors
vii.
Trade receivables (Net) as number of days of Revenue
from Operations (gross)
Days 0-10
May apply to CPSEs in all Sectors except where Trade Receivables are
negligible
19

Other Parameters……contd.
Sl. Performance Criteria Unit Wt
viii.
Contingent liabilities:
Reduction in claims against the Company not
acknowledged as debt
% 0-10
May apply to CPSEs having substantial amount of contingent liabilities
ix.
Return (share of profit/loss) on Investment in Joint
Ventures- CPSEs having Joint Ventures
% 0-10
May apply to CPSEs having joint ventures
x. Milestones with respect to subsidiary CPSEs not
signing MoUs separately
0-10
May apply to CPSEs having subsidiary CPSEs not having joint ventures
xi. Any other sector specific result-oriented measurable
parameters (upto 4 parameters).
0-20
May apply to CPSEs in all sectors
20

Other Parameters (Finance CPSEs)
Sl. Performance Criteria Unit Wt
i. Loans Sanctioned during the year 5
ii. Loans disbursed/ Loans sanctioned during the year 10
iii. Loans disbursed/ Total Funds Available 0-10
iv. Overdue loans/ Total loans (Net) % 10
v. NPA/ Total loans (Net) % 10
vi. Cost of raising loans as compared to similarly rated
CPSEs/ entities 0-10
21

Other Parameters (Finance CPSEs)….contd.
Sl. Performance Criteria Unit Wt
vii. Contingent liabilities:
Reduction in claims against the Company not
acknowledged as debt
% 0-10
viii. Return on Investment (share of profit/loss) in Joint
Ventures- CPSEs having Joint Ventures
% 0-10
ix. Milestones with respect to subsidiary CPSEs not
signing MoUs separately
0-10
x. Any other sector specific result-oriented measurable
parameters (upto 4 parameters).
0-15
22

MoU Negotiation
2016-17
23

MoU Negotiation 2016-17 - Status
Particulars No of CPSEs
No. of CPSEs 382
Pre-negotiation meetings held 259
MoU negotiation (IMC) meetings held 259
Targets given 234
CPSEs exempted 143
MoU not submitted by CPSE 5
MoU Authenticated 182
MoU signed 119

MoU Evaluation
2015-16
25

MoU Evaluation 2015-16 - Status
Particulars No of CPSEs
No. of CPSEs 293
CPSEs exempted 78
Targets given 215
MoU submitted by CPSE for Evaluation 110

MoU Evaluation 2015-16
Particulars Response Complying Non-complying
Public Procurement policy 89 3 86
DPE guidelines 62 34 28
Survey 80
CSR 82
Corporate Governance
27

Supporting Documents
Where achievements are not verifiable from annual
report, CPSE may submit the same by way of resolution
from Board of Directors.
28

29

Thank You
30

MoU Evaluation
2015-16
31

Self Performance Evaluation Report by CPSEs
• CPSEs are required to submit Self evaluation Sheet on the basis
of audited data along with Annual Accounts/Report, other
documentary evidences in support of achievement of financial and
non-financial parameters, etc. within the target date of 30 th
September, 2016;
Documents submitted should be authenticated and conclusive;
Mandatory compliances of various Guidelines and entry of data as
prescribed in MoU guidelines for negative marking ;
Submit actual performance of the CPSE as per the Minutes or MoU
negotiation meeting .
• Self evaluation sheet should be approved by Board of the CPSE
and is to be submitted through its Administrative
Ministry/Department by the due date;
• Self Evaluation sheet includes, composite score as well as rating,
as calculated by CPSE;
32

The following documents are to be considered by DPE during MoU Evaluation;
• Minutes of the MoU Negotiation Meeting;
• Signed MoU along with Annexure;
• Self Evaluation Sheet submitted by CPSE through Administrative
ministry/Holding CPSE ;
• Following documents are required along with the self evaluation sheet ;
Annual Report & Financial statements ;
External Certificates.
Internal certificates signed by appropriate authority
• Report on commitment and assistance by Admin ministry/ Department
• Besides CPSE should have timely reported to the concerned for :
- Report on compliance of Corporate Governance;
- Compliance of DPE guidelines.
- Compliance of MSME guidelines.
- Compliance of CSR guidelines
- Online entry for PE survey
- Online entry of MoSPI (wherever applicable).
Documents to be considered in MoU Evaluation 2015-16
33

• Computation of financial achievements should be as per
definitions given in MoU Guidelines issued by DPE and
Generally Accepted Accounting Principles & rules and as per
Audited Annual Accounts.
• Performance against a parameter would be considered after
making suitable adjustments in the target as per specific
comment / recommendations as mentioned in the minutes of
Negotiation meeting versus actual achievement against the
parameter .
• Example: Adjustment for Plant Shutdown, change in policy during the
year for subsidy calculation, valuation of stock, foreign exchange rate
variation etc.
• If there is any inconsistency between signed MoU and Minutes
of Negotiation meeting, generally minutes of negotiation
meeting is considered for Evaluation .
Internal Evaluation by DPE: Financial Parameter
34

Internal Evaluation by DPE: Non-Financial Parameter
• Non-Financial achievements should be as per the MoU
Guidelines issued by DPE and as mentioned in Minutes or
MoU, so that actual performance reported is in line with as
considered in MoU targets;
• To the extent possible, the documents submitted in support of
non-financial achievements should be independently
verifiable and conclusive;
• Where achievements are not verifiable from annual
report, CPSE may submit the same by way of resolution
from Board of Directors.
• In absence of the supporting documents for Non-financial
achievements, this may entail an automatic downgrading by
at least one notch from the rating claimed by CPSEs in
respect of the parameters for which documentary evidence
have not been submitted to DPE.
35

MoU Evaluation by the IMC
• DPE evaluates Self Evaluation score sheets submitted by
CPSEs through Administrative Ministry/Holding CPSE and
the observations and comments will be placed before IMC
members;
• IMC may accept the view of CPSE or Ministry or DPE or in
specific circumstances may take decision independently;
• Down grading :If the rating of CPSEs gets adversely
affected during internal evaluation (i.e. downgrading of
rating from self assessed score of CPSE and tentative score
calculated by DPE), then opportunity by way of written/oral
re-presentation is given to the concerned CPSE through
administrative Ministry/Department.
36

MoU Evaluation by the IMC Contd …..
• Offsets: Non achievement of specific targets by CPSEs for reasons
beyond the control of CPSEs with specific recommendation of the
Administrative ministry, if qualified , will be examined by IMC and shall
be recommended for approval of HPC. The power to permit offsets in
MoU evaluation for reasons beyond the control of the CPSE (force
majeure), is with the High Power Committee on MoU .
• Over-achievement of Targets: It has been observed that some
CPSEs under-pitch their projected targets for the coming year during MoU
negotiation meeting so as to plead for soft/low targets. In such cases, during
MoU evaluation DPE/ IMC may call upon the CMD of the CPSE to
explain plausible reasons for such over-achievement due to under pitching
of targets.
• Finalization of Score & Rating :IMC shall finalize the
Minutes of Evaluation Meeting and recommend MoU Scores
and Ratings for approval of HPC.
37

Penal Provision (Negative marking) in MoU
• Following mandatory compliances and non submission of data
may be penalized up to 1 mark depending on the degree and
seriousness of non-compliance.
– Non-compliance of Corporate Governance
– Non-Compliance for procurement as prescribed in Public
Procurement policy issued by MSME
– Non-Compliance to DPE Guidelines
– Non-Compliance to provisions as prescribed in CSR
guidelines
– Non-compliance to submission of data for Public
Enterprises (PE) survey,
– Non-compliance to submission of data for MOSPI (if
applicable)
38

Negative Marking: Corporate Governance in MoU
Evaluation 2015-16
• Non-Compliance of Corporate Governance will be penalized
by way of negative marking and MoU score will be increased
in the following manner in accordance with DPE OM
18(8)/2005-GM, dated 22nd June, 2011.
• Status of Negative Marking :
– 2013-14 : 70
– 2014-15 : Nil
– 2015-16 : CG Rating under Finalization
Sl Annual Score Grading Penalty Marks
1 85% and Above Excellent 0
2 75%-84% V. Good 0
3 60%-74% Good 0.5
4 50%-59% Fair 0.5
5 Below 50% Poor 1.0
39

Negative Marking : Compliance to Public
Procurement guidelines by MSME
• CPSEs have to adhere to 20% procurement from MSE and 4%
from SC/ST MSEs .
• Status of Negative Marking :
– 2013-14 : Not Applicable
– 2014-15 : Nil
– 2015-16 : 89 CPSE’s have submitted data
44 CPSEs have complied to 20%
out of which only 03 CPSEs complied to
4% of SC/ST entrepreneurs
40

Negative Marking : Compliance to DPE guidelines
MoU 2015-16
• CPSEs have to give a Certificate regarding implementation of
Guidelines issued by DPE as per OM No.-DPE/14(38)/10-Fin
dated 28th June, 2011.
– Non compliance of DPE guidelines on the basis of certificate
submitted will be penalized up to 1 mark .
• Status of Negative Marking :
– 2013-14 : 65
– 2014-15 : 78
– 2015-16 : 62 CPSE’s have submitted data out of which
28 have reported non compliance
41

Negative Marking : Compliance to CSR guidelines
• CPSEs have to adhere to provision of CSR guidelines as per
section 135 of the Companies Act 2013 .
• Status of Negative Marking :
– 2013-14 : Not Applicable
– 2014-15 : Not Applicable
– 2015-16 : 82 CPSE’s have submitted online data
42

Negative Marking : Compliance to Survey Data
Entry for 2015-16
• CPSEs have to enter data for PE Survey by 30th September
2016
• Status of Negative Marking :
– 2013-14 : Nil
– 2014-15 : Nil
– 2015-16 : 80 CPSE’s have not submitted survey data
43

Negative Marking : Compliance to Project
Monitoring Data for 2015-16
• CPSEs have to enter online data every month for Rs 150
crores and above projects in OCMS system under MoSPI as
per prescribed timelines .
• Status of Negative Marking :
– 2013-14 : Nil
– 2014-15 : Nil
– 2015-16 : Under Compilation
44

Receipt of MoU self evaluation report 2015-16
Particulars No of CPSEs
MoU Signed: 215
- Holding 143
- Subsidiary 72
Self Evaluation Report received:
- Through Admin. ministry 110
- From CPSE 34

Timelines for MoU 2015-16 Evaluation
• CPSEs were to submit self evaluation report latest by 30th
September, 2016 through Administrative Ministry/Department
to DPE;
• Alongwith Self Evaluation the CPSEs are required to submit
the following mandatory compliances :
• Corporate governance to Management division of DPE;
• Compliance to DPE guidelines to Finance division of DPE;
• Compliance to CSR guidelines to CSR division of DPE;
• Submission of online survey data by 30th September 2016;
• Compliance to Public procurement guidelines
issued by MSME to JS or DC (MSME) ;
• Submission of online project monitoring data as per
prescribed timelines , if applicable; OCMS system of MoSPI
46