The Hindu Business Line : The ONGC stand-off — Should PSUs remain govt departments or behave like corporates?

The ONGC imbroglio has provided the premise for a national debate on the relationship between owners and management of PSUs, a debate that had died a somewhat whimpering death when the focus shifted in the mid-1990s to the problems of divestment p er se.

AFTER a month or more of somewhat unseemly and publicly reported disagreements with his `political masters', notably on the appointment of two, additional government nominees on the board of the company he heads, Mr Subir Raha, Chairman and Managing Director of Oil and Natural Gas Corporation, took the high ground at the company's 12th annual general meeting, on September 21. Mr Raha opened up a national debate on the control of public sector undertakings in an era of increasing shareholder democracy in corporate entities. After listing the achievements of ONGC in its Golden Jubilee year, Mr Raha fired what must become the first salvo in the debate when he said: "... Companies are not departments. Everyone expects companies to make profits; everyone considers departments to be cost-centres... "

He elaborated on the distinctions between a listed company and a government department, pointing out the rights and responsibilities of each and, thereby drawing the conclusion that ONGC, by virtue of being a listed company, had its own motives — profit-making — and its own rationale for existence and its own accountabilities. "Companies," he asserted, "by definition, are governed by the Companies Act, departments are administered under executive rules and procedures."

Companies, he further said, have shareholders, are "legally liable for compliance with the Listing Agreement; there is nothing like a listed department... " And, with a masterful stroke: "A public sector company is owned in entirety or in majority by the people and not by any individual in a given office for a given tenure."

After months of wrangling with bureaucrats in the Petroleum Ministry, Mr Raha used the ONGC AGM to stunning effect by appealing to his shareholders — as their chief executive bound by corporate law — and to the people of India — as the eventual owners of the company. By doing so, he transformed his differences with his Ministry from the banal level of personality clashes to the dignified field of governing principles, in a forum that would have understood what he was talking about.

By choosing the AGM and the high tone, Mr Raha sent to the shareholders, and indirectly to public opinion, the signal there is a time and place for differences between `masters' of listed PSUs and their chief executives; that they must be aired under protocol enshrined in law. All individuals vested with power and responsibility are accountable to entities larger than them.

On the surface, it is quite possible to dismiss this speech as a victory for Mr Raha in the ongoing battle between him and the Ministry that appointed him. But by his own logic, his tenure is limited. He is vested with the CMD's post for five years and that tenure expires nine months hence. In all probability his political masters will outlive him in this battle for the control of ONGC Ltd.

Even if there is no witch-hunt and unless some dramatic shifts in the power equation happen in the Ministry or there is a change of heart in his immediate bosses, Mr Raha will step down as CMD. This speech was his coda; a dramatic one to a controversial tenure in which the ONGC will be judged not by one decision he did or did not take, but by the strategic goals that he has achieved, and the returns the company will deliver in the medium term.

It has already declared a 200 per cent dividend for 2004-05; Mr Raha mentioned in his speech that ONGC had "trebled the group turnover from $5,000 million to over $14,000 million," a statement that has been audited. His political `masters' will decide his fate as `public servant' but his shareholders will judge his value by different lights than his Ministry whose officials have been purported to question his business decisions.

"The purpose of a company is to create wealth. Your company is engaged unwaveringly in the business of creation of wealth. All business involves risk, except when protected by the state." If the state withdraws that protection, he said, the two options are to dissolve the company and run it as a department or allow the same to run as an enterprise.

More than any other part of his speech it is these sentiments that provide the premise for a national debate on the relationship between owners and management of PSUs, a debate that had died a somewhat whimpering death when the focus shifted in the mid-1990s to the problems of divestment per se. Every government, and all of them were coalitions, remember, had to face the problem with their partners of whether or not to divest and if so, which one.

Attention was also focused on the method of divestment and the reasons for diluting government stake. Strategic sale or public offer route? That debate still continues. Ten out of 15 CEOs of public enterprises that attended a conference organised by the Heavy Industries Ministry favoured a public offering to strategic sales through competitive bidding.

Some divestment went through like a breeze — for instance, VSNL's in 2000, when the Tatas acquired a minority stake of 26 per cent. Others did not go through and the latest in that list is BHEL. Clearly, the debate on this score has become a partisan one, with some coalition partners, or even the Opposition, for whatever it is worth, set against the sale of navratnas. But a more important debate on the management of the divested company has been sidelined or forgotten. Till now.

India has a long history when it comes to political interventions in PSUs. Most political parties cave in to the temptation of appointing their nominees to head these organisations. But there are signs of change. After a long history of arm-twisting by the Finance Ministry, most public sector banks are free from directional lending to the priority sector and even have the mandate to institute VRS schemes to trim their workforce. Corporatisation and divestment has provided a spur for the bolder chief executives to take business risks, to consider themselves heads of profit-driven organisations.

This is to the good because it tells us that at least they have imbibed the lesson of corporate governance. The fact that till a few years ago, chiefs of the more profitable scheduled banks were reluctant to take on loss-making institutions simply because of government prodding is an indication of this new-found urge for profit-driven businesses. Consider the IFCI, which found no takers for a long while. But it is in Mr Raha's case that the notion of running a company along corporate lines became most acute.

The literature on the subject of ownership and management of PSUs is extensive with a considerable body of work done by the Standing Conference of Public Enterprise (SCOPE), academics and independent consultants. Though some issues have been dealt with, for instance, Listing Agreements for divested PSUs, the core issue of independence for managements within the ambit of government ownership, remains unresolved.

It would not be inappropriate to now consider the extent to which the Left parties in the UPA coalition can help launch this debate and carry it towards a meaningful and workable solution. The Left parties have maintained a silence on the Raha-Petroleum Ministry tussle, but they ought not to see this as a simple case of egos clashing and stay aloof, or consider this and other forms of interference as examples of `political opportunism'.

Ideologically, the parties do not have a stake in controlling any PSU, most if not all party members live simply and are known to be fairly incorruptible. They have never jockeyed for individual posts in the government. A senior party member, the Chief Minister of West Bengal, has intentions of turning his State into a haven for private investments.

At this juncture, given their bargaining power from the outside, the Left should not let such crucial matters affecting blue-chip companies such as like ONGC become the plaything of vested interests from one or the other party.

But the most important reason for their intervention must lie in their adherence to the idea of decentralisation of power. In the 1970s and the 1980s this issue had gripped the public imagination.

It was a combination of the liberal (Ramakrishna Hegde) and the Left (Ashok Mitra) thinking that defined and carried the case for devolution. What else is separation of ownership and management if not the devolution of powers from the Centre to the State?

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