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The Union Cabinet today approved the extension of the Purchase Preference Policy (PPP) of Central Public Sector Enterprises (CPSEs) beyond March 31, 2005 with the following modifications / conditions:
(i) PPP will be continued for a period of 3 years, with the clear stipulation that it will be terminated with effect from 31.3.2008;
(ii) Each Ministry would be asked to make a list of PSEs that would require PPP support. If there is no possibility of making a positive list, each Ministry may attempt a negative list of PSEs which may not require PPP support;
(iii) PPP support would be extended to contracts of the value not exceeding Rs.100 crore. If civil works are included as part of the contract for supply of goods and / or if the contract is a turnkey contract, such contracts would also be covered by the PPP, subject to the condition that the total value of the contract does not exceed Rs.100 crore;
(iv) Exemption will be granted to the Ministry of Power from the PPP policy, subject to the condition that Ministry of Power will place certain orders upon BHEL on a negotiated basis price benchmarked through competitively bid projects every year. Ministry of Power and Ministry of Heavy Industries would work out, at the beginning of the year, the number and value of the orders to be placed upon BHEL, during the financial year;
(v) PPP will apply only to PSEs and their subsidiaries (i.e. where PSE owns 51%), but not to a joint venture owned by a PSE and a private sector partner;
(vi) PSEs should be subject to the same qualification process as any other bidder. If the PSE does not meet the minimum qualifications, it would be subject to disqualification. However, in suitable cases, the purchasers / clients will relax the condition of “net worth” from the list of minimum qualifications;
(vii) If the PSE which has had the benefit of the PPP fails to perform, it would also be subject to payment of liquidated damages or any other penalty included in the contract;
(viii) Other provisions of the existing policy will remain unchanged.
These changes have been approved with a view to utilize the capacity created in the public sector enterprises fully and to improve the performance of CPSEs through order booking.
Government introduced the Purchase Preference Policy (PPP) for products and services of Central Public Sector Enterprises (CPSEs) in 1992 in place of the policy of both price and purchase preference prevailing at that time. The policy provides that where the price quoted by a CPSE is within 10 per cent of the lowest valid bid price (L1) in a tender, other things being equal, purchase preference is to be granted to the CPSE concerned at the L1 rates by the Government Departments / Organisations/Other CPSEs. The underlying objective of this policy was to enable the CPSEs to adjust to the new environment of competitiveness and market mechanism in the wake of liberalisation/globalisation in spite of having to meet certain inherent system requirements and to assist these enterprises in improving their profitability by better utilisation of installed capacities through ensuring better order booking.
The policy of purchase preference was initially made applicable for a period of three years. It has been reviewed and extended from time to time. The present policy was last extended up to March 31, 2005 as per the decision of the Cabinet dated October 13, 2004.
YSR/HS/LV
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