The government has for the first time included a golden share clause in the draft shareholders' agreement for strategic sale of 34.01 per cent equity in Hindustan Petroleum Corporation.

The move will enable the Centre to veto any resolution despite holding a 12 per cent stake in the company after divestment.

The Centre had toyed with the idea of golden shares soon after the establishment of the divestment department in 2000 but had shelved the plan because sections within the government were of the opinion that the model had not found favour in the United Kingdom, which used it during its privatisation programme in the 1980s.

In addition, clauses have been introduced in the draft shareholders' agreement to prevent the strategic partner from altering the memorandum of association, disposing assets and winding up the company.

The areas where government permission will be required include commencement of any line of business outside the hydrocarbon sector, issue of shares, conversion of debt into equity and investment of Hindustan Petroleum's reserves in other group companies by the strategic partner.

The clause barring investment in group companies has been inserted after the government's experience with Videsh Sanchar Nigam Ltd, in which the Tata group acquired a 25 per cent stake and later invested Rs 900 crore (Rs 9 billion) of its reserves in group company Tata Teleservices.

Any scheme of merger, demerger or amalgamation and change in the number of directors will also need government ratification.

The draft shareholders' agreement also provides the government with powers to nominate two directors on the 12-member board of the company as long as it holds 5 per cent equity.

Officials said the golden share clause would allow the government to nominate a director to the Hindustan Petroleum board as long as it remained a shareholder.

Apart from the strategic sale, the government intends to offer 5 per cent of Hindustan Petroleum's equity to employees at a concession, following which it will hold 12 per cent in India's second largest oil-refining company.

The revised shareholders' agreement circulated among the bidders--Shell-Saudi Aramco, BP-Kuwait Petroleum, Petronas, Chevron Texaco, Essar and Reliance--has 28 clauses through which the government intends to retain control over Hindustan Petroleum after its divestment.

Official sources said the strategic partner would not be able to retrench employees for a year after the divestment. Bidders will start due diligence for the sale early next month.

Additional inputs: Business Standard