Even as the Union Cabinet on Thursday made it mandatory for public sector undertakings (PSUs) to follow corporate governance norms, senior executives of blue chip PSUs point out that it is the government itself that has been posing hurdles in the implementation of these rules.
Senior executives of public sector energy major GAIL disclosed that the company management had run into trouble with market watchdog Securities and Exchange Board of India (Sebi) for not appointing the required number of independent directors on its board because the proposal had been held up by the ministry.
GAIL had to furnish its communication with the ministry of petroleum and natural gas to prove that it was the government and not the company management that was responsible for the delay in appointment of independent directors.
Sebi eventually concluded that it was a case of a “sad travesty of the law by the government of Indiaâ€¦ and as it’s not the company but the major shareholder (government), which is the culprit”. Similarly Oil and Natural Gas Corp (ONGC) officials point out that although the oil giant is a listed company, the government has an ad hoc mechanism for forcing it to compensate the downstream oil companies – Indian Oil Corp Ltd (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) – for revenue loss on the sale of petroleum products sold below market price due to the government’s political compulsions.
Senior ONGC officials are of the view that this is not fair to the shareholders and if the government wants to pay such compensation in the national interest, it should to be done on the basis of a concrete formula.
Besides, the price that ONGC gets for its natural gas is less than half of what the private companies rake in and the government has been dragging its feet on the proposal for raising the price to a more reasonable level. ONGC has been losing Rs 3,000 crore every year as a result of this low price.
While the petroleum ministry has been in favour of increasing the price, the power and fertiliser ministries have been opposed to the proposal as it would lead to an increase in the cost of production for power plants that sell electricity at regulated prices and the fertiliser subsidy would also go up.
Natural gas is used as a fuel by power plants and as a feedstock for manufacturing fertilisers.
Executives of the downstream oil companies, such as IOC, BPCL and HPCL also hold the grouse that the government has not been allowing them to raise the prices of petroleum products to bring them at par with market prices due to political reasons and this has eroded their profits.
Even the partial compensation that they receive from the government does not come in time, which makes it difficult to manage their books since they have to prepare their financial results every quarter like the other listed companies.
Senior public sector executives are also of the view that independent directors must be appointed by the government on managerial merit rather than on the basis of political connections, which turns out to be counter- productive.
As far as the emphasis on audit in the new corporate governance norms is concerned, senior executives say the public sector companies are already subject to stringent audit by the Comptroller and Auditor General of India (CAG), whose report is tabled in Parliament.
Besides, public sector companies fall under the watchful eye of the Central Vigilance Commissioner (CVC) and the Central Bureau of Investigation ( CBI). “The fear of these three Cs (CAG, CVC and CBI), in fact, often cramps the decision making of public sector enterprises,” a senior executive remarked.
Governance a distant dream for PSU: