The Hindu Business Line : Don't split Indian Oil Corporation

In the Government's hurry to show success in privatising oil companies, the larger objective of disinvestment seems to have been lost sight of. Is the aim to free PSUs from government control? Or to raise resources to fill the dwindling exchequer? This is something the government and Mr Shourie need to think about, particularly in the case of Indian Oil, says Raghuvir Srinivasan.

IOC's Mathura refinery... With several strategic assets and a refining capacity of 38 million tonnes, Indian Oil has the capability to become a multinational major. It needs to be nurtured rather than cut down to size.

IT IS a move that needs to be nipped in the bud. The Government's decision to examine the possibility of breaking up Indian Oil Corporation before its eventual sell-off is ill-conceived.

The immediate provocation appears to be the failure of the privatisation process of Hindustan Petroleum following last month's Supreme Court judgement. The move could also have been triggered by the desperation to get as close as possible to the disinvestment target of Rs 13,200 crore for this fiscal.

Whatever the motive, the decision is set to set off another tug-of-war within the government on the privatisation issue. The Petroleum Minister, Mr Ram Naik, has made known his reluctance to allow a split of Indian Oil, and others will surely join him in what appears to have the seeds of a fresh controversy. The government seems to have, willy-nilly, opened up another Pandora's Box even as the issue of privatisation of Hindustan Petroleum is yet to see a solution.

Why the split is wrong

The Indian Oil split proposal is not such a smart move after all, and needs to be opposed on two major counts. First, it will destroy a Fortune 500 company that has the makings of a multinational from India.

Granted, Indian Oil, with a current turnover of $26 billion is still a midget by global standards where the likes of the $235 billion-Royal Dutch/Shell dominate. Yet, Indian Oil is the best bet we have to take on the oil giants in the international arena and soon, in the domestic market as well.

Indian Oil has charted out a strategy to expand its wings outside India. A good example is its foray into neighbouring Sri Lanka, where it has acquired a sizeable retail presence and also taken the strategic Trincomallee oil tank farm on operational contract.

It is the premier retailing company in India with several strategic assets and a refining capacity of 38 million tonnes. Indian Oil is expanding vertically into upstream oil exploration and downstream petrochemicals with a view to becoming an integrated oil company a la the multinationals. If any oil company in India has the resources and the capability to become a multinational major, it is Indian Oil.

Such a company needs to be nurtured and developed rather than cut down to size, literally. The proposal to break up Indian Oil is unacceptable simply because it will demolish a growing giant that will be a source of strategic strength to the country. And it is all the more so when you consider that it is being done merely to raise some much-needed funds for an eternally cash-strapped government.

Again, breaking up a company is not as simple as splitting its physical assets. A number of factors need to be taken into account including the issue of human resources and the company's future growth trajectory.

Besides, Indian Oil is listed on the stock exchanges and has a significant investor following. The government, as the dominant shareholder, has to behave responsibly, and proposals such as this will only serve to kill the stock market's developing appetite for PSU stocks.

Second, the proposal appears to have been thought of to effectively bypass the Supreme Court verdict on the privatisation of Hindustan Petroleum which said that public sector companies created by Parliament through nationalisation cannot be sold with its permission.

While Hindustan Petroleum was created by the nationalisation of Esso's undertaking in India, Indian Oil was born in an organic manner. It was created in 1964 through the merger of Indian Refineries Ltd. and Indian Oil Company Ltd., which was set up in 1959. Therefore, the Supreme Court verdict will not apply to the company.

The Government is effectively mocking the spirit behind the apex Court's judgement, which is that the people's permission is necessary before national assets are sold. Indian Oil may not have been created through nationalisation but it has been built up and nurtured over the years with the tax-payer's money.

It cannot be denied that favourable treatment from the Government over the years has been a major factor responsible for the growth of the public sector. Indian Oil is certainly no exception to that.

The Government and the Disinvestment Minister, Mr Arun Shourie, need to examine whether they would like to be seen as acting too zealously in their attempt to circumvent the Supreme Court's judgement.

Finally, there is the strategic argument. There is an element of truth when critics say that the oil sector is strategic and needs to be privatised with caution.

It is one thing to privatise Hindustan Petroleum and Bharat Petroleum, both of which together account for roughly half the market, but entirely another to privatise Indian Oil, which single-handedly owns the other half. Indian Oil also owns strategic tankages and pipelines, apart from — together with subsidiaries — accounting for about 45 per cent of the total refining capacity in the country.

It is a national oil company in its own right, much like Petronas of Malaysia or Petrobras of Brazil. Selling off such a company requires much more debate and consensus than is the case now. Indeed, the act of splitting up the company is bound to raise its own set of controversies, especially with regard to human resources.

In the Government's hurry to show some success in the privatisation of oil companies, the larger objective of the privatisation process itself seems to have been lost sight of.

Is it the lofty aim of freeing public sector companies from the shackles of government control? Or is it merely to raise resources for the government to feed its expenditure programme? This is something that the government and Mr Shourie need to answer.

Pause and reflect, Mr Shourie

The Disinvestment Minister, known for his crusading zeal as a journalist, appears to have taken the setback to the privatisation of Hindustan Petroleum and Bharat Petroleum personally.

There is no doubt that Mr Shourie has enjoyed a fairly successful tenure in the Disinvestment Ministry till now, especially considering that privatisation has been a hated subject for politicians in government. He has given an acceptable veneer to privatisation and the attempts by some of his own colleagues in the party and government to cut him down to size is enough and more proof of his success in the disinvestment domain.

His never-say-die attitude on the issue of privatisation of the oil twins, Hindustan Petroleum and Bharat Petroleum, has helped keep the issue boiling more than a year after the first failed attempt onit. Yet, if he has not succeeded till now, it can only be put down to his failure to create a consensus across the political spectrum on the issue.

Mr Shourie would do well to pause and reflect on this. Getting parliamentary approval as desired by the Supreme Court would have been a song had the Government built consensus on the issue.

Striving to build a consensus may help the privatisation programme more in the long-term than ill-advised attempts such as the one to split and sell off the country's premier oil company.

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