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 India… 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:

  • GAIL management had run into trouble with Sebi for not appointing the required number of independent directors on its board because the proposal had been held up by the ministry.
  • Although ONGC is a listed co, the govt has an ad hoc policy for forcing it to compensate the downstream oil cos for revenue loss on the sale of petro products sold below the market price due to the govt’s political compulsions.
  • Executives of IOC, BPCL and HPCL also hold the grouse that the govt has not been allowing them to raise the prices of petroleum products to bring them at par with market prices due to political reasons.
  • Senior PSU staff also feel the independent directors must be appointed by the govt 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 public sector companies are already under the stringent scanners of the three ‘ C’s – CAG, CVC & CBI. CORP

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  1. AB says:

    From my personal experience as a former director (fin.) and Dy.FA in a very important ministry dealing with a core industry in the late 1980’s, I fully endorse the views of the PSUs quoted in this news. Though the PSU executives themselves are not exactly as pure and honest as it is sought to be projected, it is a fact that the top bureaucrats in the ministries/government have been milching the PSUs ever since these huge units were started after independence and it is taken for granted that, apart from other much bigger benefits being provided to those bureaucrats even in the watchdog bodies mentioned above, a large fleet of cars would be placed at te disposal of the top officers of the concerned administrative ministries/departments for the use of their families. Even for picking up and dropping the lowest of the officers, these company vehicles used to be provided as a matter of rule until very recently, apart from providing ACs, computers, domestic help, free air/railway tickets (always AC Ist class) even while availing of LTC benefits, private foreign triops of families, getting required foreign exchange abroad while on official tours, marriage expenses of the children of the concerned bureaucrats, taking care of the movement od personal effects in the events of the reversion of the officers to their respective parent cadres/postings, meeting expenses on the construction of their houses, etc., and all this were routine matters. The commercial audit people from the concerned authority and their bosses, or the top people in the other watchdog bodies have been no exception. As a result, the annual accounts of each of these companies were more of manufactured documents, with the connivance of the statutory auditors who were paid several times more in cash than the official fees stipulated by the CAG, and nothing really hidden! The tax authorities as usual coming to the scene much after the happening of these events also extracted their “Customary Tips”-that is what they do. In a classic case og commercial audit of a manufacturing company owned by the government, for years at a stretch an outstanding unresolved item (imported machinery of several hundred crores-and that too imported in the 70s!-) remained unopened and unused and still appearing as stock in the balance sheet with the CAG reporting the same religiously every year too, the ministry never taking any cognisance of the matter, nor did the CBI?CVC as well. The company finally replied to the years-old audit objection as under:
    “the machinery (of about Rs.300 crores or so, the landed cost) had been eaten by rats and necessary action was taken to kill the rats in the stockyard”!
    This was accepted by the top bosses-all “generalists” but considered “specialists” in all subjects-from engineering to family planning to education to planning to social welfare (by dint of their spouses running NGOs), to power generation to aviation to archaeology to town planning and scavenging, naturally by being the topmost of all the civil servants in the country! The farce of audits in the PSUs still continues merely to be eyewash and no punishment is ever meted out to anyone resulting fro a very rare adverse audit comment of the CAG, as compared to the audit reports of revenue audit conducted by equally untrained legal experts! The independent nominees are truly appointed by way of dispensation of favours by the misnisters/political leaders/personal staff of ministers/bureaucrats, etc., and indeed never on merits, while govt. nominees only enjoy the hospitality of the PSUs.
    Neither CAG nor CBI nor CVC has been interested in removing these anomalies, their stakes being no less.
    Let us face and accept the facts and forget about all this mundane matters.

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