Oil and Natural Gas Corp (ONGC), India’s most profitable firm, will lose the coveted Navaratna status and the accompanying financial autonomy in its rush to the Rs 11,500 crore share sale scheduled next month.

The government plans to withdraw both of its directors on the ONGC board to meet the capital market regulator SEBI’s listing norm of having equal number of functional and independent directors to allow Rs 11,500 crore public offering (FPO) on April 5, sources said.

The move would, however, lead to ONGC losing its Navaratna status that gives the company board autonomy to approve investment in its projects and of up to Rs 1,000 crore spending in a joint venture company.

According to the norms, a Navaratna board can exercise its limitless powers only when it has government-nominated directors on board. Upon withdrawal of such directors, ONGC will have to seek nod of the Public Investment Board (PIB) for any spending of over Rs 100 crore, sources said.

The situation has arisen after a blunder by oil ministry in nominating independent directors on ONGC board. ONGC has six functional directors, besides the chairman. It also has two government-appointed nominee directors, taking the total strength of functional/promoter directors to nine.

Against this, it has four independent directors and needs five more to meet the SEBI’s listing norm. Sources said that last year the ministry under the then minister Mr Murli Deora had selected five persons, including a chartered accountant, an IIT-Mumbai professor and a CEO of private sector lender for nomination to ONGC board.

However, before the names could go to the Cabinet Committee on Appointments (CCA), Mr Deora was replaced by Mr S Jaipal Reddy.

Mr Reddy did not send the names to CCA till mid-February and then only recommended the names of the IIT professional and HDFC Managing Director Ms Renu Sud Karnad.

His logic was that since ONGC did not have a permanent chairman after the retirement of Mr R S Sharma and the vacancies of director (human resources) and director (exploration) were unfilled, the effective board strength was down to six and only two independent directors were needed to meet SEBI norm.

But before the CCA could approve, Mr S V Rao was appointed Director (Exploration), taking effective board strength to seven.

Also, it came to light that a serving executive in any company cannot be appointed as independent director on a PSU board, sources said, explaining the reasons for rejection of Ms Karnad’s candidature.

The remaining three persons chosen by the oil ministry too failed to meet the guidelines and so the government has now decided to withdraw its two government directors to bring down the effective strength to five.

Related Topics
comment COMMENT NOW