Financial Daily from THE HINDU group of publications
Friday, Jul 16, 2004
Industry & Economy
Corporate - Alliances & Joint Ventures
Retail, shipping business Govt turns down ONGC's joint venture proposal
Balaji C. Mouli
New Delhi , July 15
THE Government has turned down public sector undertaking (PSU) Oil and Natural Gas Corporation's (ONGC) proposal to operate its retail and shipping business through joint ventures where it holds 49 per cent.
It has argued that such joint ventures are not bound by mandatory checks of PSU watchdogs such as the Central Vigilance Commission given the joint venture's non-public sector status.
ONGC, in a board proposal that is scheduled to come up for discussion on Friday, has proposed that it be allowed to set up a joint venture company with 49 per cent equity that commissions retail outlets.
Further, the joint venture undertakes quick investment decisions that cannot await procedures that public sector undertakings are mandated to follow.
As part of the twin proposal, it has also proposed to lease its shipping assets to a joint venture company consisting of shipyards and service firms, both in the public and private sector. The joint venture will, in turn, `wet lease' it back to ONGC, that manages the assets as well as operate it for the exploration major a business worth around Rs 500 crore per annum.
In regard to the retail business, the company has reckoned that the joint venture would enable the company to compete with the private sector on an even keel in matters such as purchase of real estate for setting up of retail outlets. ONGC was granted a licence in May, 2002, to set up 600 retail outlets. This business has yet to take off and the Government feels that it would be prudent for ONGC to go about its retailing business through its refinery subsidiary, Mangalore Refineries and Petrochemicals Ltd.
In the retailing joint venture, ONGC Values Ltd (OVAL), ONGC will maintain a 49 per cent stake, hence maintaining the non-PSU nature of the company. The other stakeholders in the venture are financial institutions such as ICICI Ltd, IDFC and HDFC.
According to the Government, through this joint venture, a public sector company such as ONGC would be delegating its decision-making powers to a non-PSU and thus escaping the rules applicable to its functioning as a PSU.
A PSU's working is governed by procedural norms laid out broadly by the Central Vigilance Commission as well as the Comptroller and Auditor-General.
The proposal to create OVAL was first mooted during ONGC's board meeting on January 31, 2003. Given the controversial nature of the proposal, it was deferred repeatedly and finally landed in the Government's lap for scrutiny.
On the shipping front, ONGC has about 32 `offshore supply' vessels as well as multi-purpose vessels, which are used to tow rigs to the area of drilling, engage in fire fighting operations, etc.
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