At the recent Petrotech Conference, the Minister for Petroleum and Natural Gas, Mr Mani Shankar Iyer, expressed his displeasure over the "meaningless rivalry" among the various public sector units. He also stated that he did not want the Ministry to be the arbitrator for settling disputes among the PSUs.

The six-member Advisory Committee constituted to look into the restructuring is chaired by Mr V. Krishnamurthy and includes Mr G. V. Ramakrishna (former Petroleum Secretary and Divestment Commission chairman), Dr Vijay Khelkar (former Petroleum Secretary, Finance Secretary and Advisor to the Finance Minister), Mr B. C. Bora (former ONGC Chairman), Mr U. Sundarajan (former BPCL chairman) and Mr G. K. Arora (former Finance Secretary and India's representative in the IMF). With such high-profile persons in the Advisory Committee, one is bound to expect some well-thought-out recommendations for adoption by the Government.

In this context, it will be useful to examine the options suggested.

The option of dividing the operational areas based on geography is unlikely to result in equitable distribution of production and marketing assets. As the volumes, sales and asset values, revenues and profit cannot be equitably divided, they are not comparable. Whereas the Western region, comprising mainly Gujarat and Maharashtra, contribute substantially to the production and marketing assets, the North-East and Rajasthan would not make significant contributions.

Cross-border marketing, an essential feature of competitive oil marketing, is likely to lead to undesirable practices, even if not at the corporate level, certainly at the operating and point of sale levels. Arbitration and litigation by government and judicial authorities will rise.

The Japanese model appears most relevant in the context of the current level of operations and that forecast. In fact, in the past this model has been adopted in some form and has contributed significantly to the growth of the industry, in general, and improvement in customer service, in particular.

One can argue that some sections, such as exploration and production (E&P), have not performed well enough. In this context one should not forget that the Oil Coordination Committee (OCC) played a significant role in ensuring that infructuous investments, at times involving expensive duplication of facilities, did not take place. No one can claim that this system was the perfect regulatory mechanism. But so long it existed, the OCC certainly played an important role in ensuring judicious distribution of scarce resources.

The option of forming a holding company can be introduced even if the core competency model is selected. This company can play a similar and, perhaps, a more effective role than what the OCC did in the past. Every participant in the holding company will have the freedom to express his/her views on any proposal, be it investment, expansion or diversification. This will ensure that valuable resources are put to judicious use.

The option of forming a monolithic company is best avoided. Currently, PSUs, international players and the Indian private sector are in operation. More are likely to emerge on the scene. Both internal and international competition will be the order of the day, and to respond effectively to the market needs, speedy interventions on various operational fronts, such as production, distribution, sales, pricing, packaging and promotions, will be required. A monolithic set-up can hardly be expected to respond quickly enough. In the past, there used to be seven-eight levels through which a file progressed before approval was given and action taken. Such delays will only increase if a large oil company is formed through the merger of all existing players. What is required is a lean organisation with fewer levels of reporting. Also, the number of regional, divisional and area offices have to be reduced and the remaining restructured. With improved communication facilities, the existing organisational set-up is redundant.

A more or less similar situation will prevail if two big oil giants, led by ONGC and IOC, are formed. Private sector companies will not be interested in such a set-up, and this may also run contrary to the established principles of PSU management, where public interest and social responsibility is of utmost importance.

Again, there is no merit in the option of setting up three large entities. But there is certainly merit in considering the formation of an enterprise specialising in gas and transport infrastructure.

Notwithstanding the option finally selected, formation of such an enterprise is an excellent idea.

While the option of having a holding company deserves serious consideration, the last one of continuing with the existing set-up is best avoided, particularly in the context of "meaningless rivalry" as the Petroleum Minister highlighted.

If this option is exercised, rivalry among the PSUs will continue, leading to dilution of competence and infructuous expenditure. The image of the Indian oil industry will take a beating internationally too.

(The author is Chairman, Gulf Oil Corporation Ltd.)

Picture by A. M. Faruqui

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