In February Druk Holding and Investments (DHI, the government's holding company), which holds shares in numerous companies and enterprises on behalf of the government, issued a draft divestment strategy outlining the guidelines for divesting shares in state-owned companies. Ahead of formulating a final divestment strategy, the DHI is now discussing this framework with the Ministry of Finance, which will play a key role in the divestment process and any decisions related to it.

According to the draft, the government's final divestment strategy will bring clarity in three main areas. The first will be to identify and classify companies as strategic or non-strategic, based on their importance to national security and their commercial and social value. Second, the strategy will set limits up to which stakes will be divested for different companies. Third, the strategy will outline the exact divestment process.

The government wants to proceed with divestment to raise funds, to move out of industries and economic sectors that the private sector is capable of handling on its own, and to exit non-strategic businesses. As the government has initiated large new projects, such as building a new "education city", the DHI's responsibilities have been growing. Moreover, many state-owned companies require more funds. For example, the national airline, Druk Air, currently requires around US$60m to buy two more planes. The DHI already has a list of commercial projects for which sufficient funds are not available, but divestment would provide resources. The government and the DHI are therefore examining divesting stakes in those projects and companies where the DHI's involvement is not essential.

It is likely that those companies that are identified as non-strategic would top the divestment list. These could include companies such as Bhutan National Bank, Bhutan Board Products, Bhutan Ferro Alloys, Dungsam Polymers and the Royal Insurance Corporation of Bhutan. Although governments often regard the airline and telecommunications industries as strategic, companies such as Druk Air or Bhutan Telecom may be classified as non-strategic, since Bhutan already has private competitors in the same business.

As to the method of divestment, one key option will be to sell shares on foreign stockmarkets, especially in India. The DHI is studying the costs and benefits of this option. Another option would be to allow foreign investors to invest in Bhutanese companies on the local stockmarket-something the Royal Securities Exchange of Bhutan does not currently allow.