In mid 2014, when the Narendra Modi government shooed away most independent directors in State-owned energy companies, many thought it was merely an attempt to fill the positions with its own nominees.
More than two years down the line, the Centre seems to be enjoying the freedom from independent directors, many of whom have in the past achieved success in neutralising even a one-sided Presidential Directive to Coal India Ltd (CIL), in the interest of the minority shareholders.
The absence of independent directors on the Boards of PSU energy firms is gross violation of the provisions in the Companies Act. The legislation demands that the number of independent directors should be equal to the combined strength of the salaried whole-time directors and government nominees.
However, according to the Web site disclosures of 14 major energy companies – including seven large unlisted mining subsidiaries of CIL – independent directors are a clear minority to whole-time and government directors.
There are a total of 96 whole-time and government directors in CIL (and its subsidiaries), ONGC, IOC, BPCL, HPCL, NTPC and GAIL. The combined strength of independent directors in these companies is 37.
The Board of the $26 billion-Hindustan Petroleum Corporation Ltd (HPCL) has only one independent director, as against five whole-time and two government directors.
India’s largest energy company $52 billion-Indian Oil and the $11 billion-exploration and production giant ONGC have merely three independent directors each, against 9 whole-time and government nominees.
Oil marketing major Bharat Petroleum (BPCL) has 3 independent directors, as against the required strength of seven. The country’s largest gas transmission company GAIL has two against six in favour of government.
For the last two years, the Centre has been asking these PSUs to invest in an array of areas: from LNG infrastructure promoted by the private sector to mega refineries and others.Against law
And while such decisions may have made business sense, the fact remains that they were approved by toothless boards in contravention of the law. Not even market regulator SEBI has asked these companies to fall in line.
The $11.6 billion CIL, which has been operating without independent directors for years, named five individuals to the posts in 2015, two short of the requisite strength.
The coal behemoth’s subsidiaries put together have only 16 independent directors, as against 44 whole-time and government nominees. Eastern Coalfields has only one independent director and four other top miners have only two independent directors each.
Incidentally, the CIL Board has shown exceptional readiness to oblige every call of the Centre over the last two years — be it to suspend the profit-churning e-auction in 2014 or bottoming up its cash pile to bridge the budgetary gaps.
Gone are the days when it flagged concerns against arbitrary distribution of linkages, or put its foot down against the UPA government’s attempt to sacrifice its interests.
Earlier this week, CIL and NTPC agreed to jointly build three gas-based fertiliser companies in Uttar Pradesh, Bihar and Jharkhand. The $10.5-billion NTPC has three independent directors on a board of 11 members.