Managing PSUs. Autonomy for PSU managements is a must

It is not for the first time that we have heard that public sector energy giant ONGC should reassess its role and focus more on strategising, exploring and developing India’s hydrocarbon space, while monetising and divesting its resources and generating funds to reinvest.

This seems to be a never-ending story. This discourse is not only restricted to ONGC but other public sector enterprises (PSEs) too, which leads us to the question, what has gone wrong in the functioning of the country’s jewels which boasts of some of the best talents in the sector?

Let us take ONGC as an example. The Ministry of Petroleum & Natural Gas, the nodal Ministry, wants ONGC to reassess its role with an aim of becoming a resource owner and function like a holding company. The thinking is that ONGC should adopt a new business model by divesting non-core activities like drilling, logging and field service to separate domain companies.

Though opinions are divided on how exactly this will help ONGC, all agree that it is time for companies like ONGC to reassess their role. But is re-inventing itself good enough? Not really. It is one thing to say on paper and another to implement. The biggest challenges for making these PSEs present-ready lie in making their boards more autonomous.

As energy expert Narendra Taneja puts it, “Reinventing will not be enough. ONGC needs to reimagine itself for today and decades to come. ONGC is not even present-ready, let alone future-ready. The clock is ticking. ONGC should wake up, smell the coffee and learn to run before it is too late”.

According to RS Sharma, Former Chairman ONGC, “Yes, there is definitely a need to rethink, but simply browbeating ONGC brass would not be the correct strategy. This will only demoralise entire workforce of the company.”

A well carved out approach is the need of the hour, according to Sharma. “There is a need to formally engage the best global experts who can do the historical study of ONGC, assess the present, and give a roadmap for the future. This should be done directly by the government in its capacity as the prime owner with cost to be borne by ONGC,” he said.

But this is easier said than done, as it is also a fact that more often than not PSEs are used as milking cows by the nodal ministries. Being a PSE comes with its own challenges and so even more challenging is to remain competitive.

“ONGC was born as a state-owned entity, so it should know how to deal with such challenges and still grow bigger, better and be globally competitive. It all depends on leadership of the company. ONGC needs an energetic and dynamic CMD and a high-quality board, and, most importantly, genuine autonomy,” said Taneja.

Former Petroleum & Natural Gas Minister, Dharmendra Pradhan had recently said, “…There is a need to develop new business models for monetisation of stranded assets and un-monetised discoveries. Business models such as Production Enhancement Contract, partnerships with global players for development of discoveries and for enhancing production from existing major fields are to be explored. The government has plans to auction unmonetised oil and gas fields of ONGC and Oil India Ltd. The plan aims to leverage the expertise of private and foreign firms to grow domestic production and help meet India’s demand for energy.”

Today, every country has its own energy transition path, while developed countries may switch to cleaner energy sources due to climate concerns, India still needs fossil fuels to meet its base energy requirements. Today, almost 80 per cent of India’s oil demand is met through imports, and almost 55 per cent of the natural gas demand is met through imports.

There is an urgent need to aggressively explore unappraised/unexplored sedimentary hydrocarbon areas in next three years given the expected spurt in economic growth post Covid-19 recovery and there is high potential to attract investment, talent and resources in India, those tracking the industry say, and rightly so.

ONGC, has pioneered oil and gas exploration and production in India and always remained at the forefront. While the company has grown manifold and has resources, that it has not taken up exploration aggressively, is also a fact. And therefore, the need for ONGC is to take the leadership role to nurture, handhold and expand exploration and production activities in India by bringing small and medium size companies.

The Ministry wants ONGC to develop new business models for monetisation of stranded assets/discoveries/spare facilities. Business models like Design, Finance, Built and Operate as well as Annuity & Securitisation based models for development need to be explored.

But, as it has been argued all these seem good on paper. There is also a need to create a proper continuity in doing business, which requires a proper succession plan. There have been instances when there has been significant lag in filling the key top management positions of ONGC.

Leadership continuity

As Sharma points out, “what further needs to be addressed is the issue of continuity of ONGC leadership with timely implementation of succession plan. In all big business houses there is a proper succession plan. At least six months prior to any key person demitting office the transition is made, but we don’t see the same in CPSEs. Why?

“Transition process should be smooth so that the work of the organisation is not affected. Look at any global energy company, it is always well planned out, so why not for ONGC if it is expected to compete with global peers,” he argued.

Taneja agrees. “ONGC does not have a succession plan worth the name for top positions. This must change. As I said, ONGC needs to be completely reimagined from top to bottom.”

For re-imaging giants like ONGC, it is also required to make the management more independent and target oriented. While the talent cannot be questioned, it is the functioning and the bottlenecks that need to be cleared with less political interventions. And this requires political will.

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