Petroleum Minister Mani Shankar Aiyar had a dream. To create one big oil company, like Exxon Mobil. If he could combine four of India's Fortune 500 companies-IOC, HPCL, BPCL and ONGC-into one he could create one that would have revenues of over $71.9 billion (Rs 3,09,170 crore) and be ranked 38th in the world. His aides hinted that it would not be a very good idea but Aiyar put it down to the regular babu mentality till a former bureaucrat recited a new lesson in eco-politics-"It would be like handling the power of four Reliance Industries." Aiyar dismissed the aide's fears outright and set up a committee headed by technocrat V. Krishnamurthy.

PICTURE SPEAK

COLLISION COURSE: Raha (left) and Aiyar

We don't know if Aiyar still nurses the ambition but as his ministry took on ONGC Chairman Subir Raha only to back off, the eco-political advice must have come to haunt him. Last month, the Petroleum Ministry tried to nominate two new directors on the ONGC board-Special Secretary M.S. Srinivasan and Director-General Hydrocarbons (DGH) V.K. Sibal. That would have taken the number of government directors to five. Nothing wrong with it since the government owns over 74 per cent of the equity. Except that Raha reminded them that since 1994 ONGC has kept the number of government directors at two from the administrative ministry and one from the Finance Ministry. He also said that nominating Sibal, the DGH, was akin to nominating the SEBI chief on a company's board.

ONGC Bid to add two more government directors on ONGC board is contrary to guidelines for Navratna PSUs. Nomination of Director-General Hydrocarbons V.K. Sibal conflicts with his role as a regulator. MINISTRY Government owns 74% of ONGC's equity. As majority shareholder, it has right to nominate directors. Sibal does not have the status of a statutory regulator so there is no conflict of interest.

True to form, the ministry mandarins did not relent and stated that Sibal wasn't a statutory regulator. Sibal added to the controversy by accusing Raha of announcing recent oil and gas discoveries "without certification of the exploratory block" to play the market. This is perhaps the first time the DGH has publicly chided a company for making such announcements. The broth was spoilt for good.

Raha produced documents that silenced the babus. He stated that the order of 1993 creating the DGH's post included regulation of exploration and production. The DGH chairs all the management committees of exploration joint ventures. Worse, the ministry had described the DGH as the regulator to Parliament. Finally, when the ministry threatened to move the resolution at the annual general meeting on September 21, Raha informed that a "consequential resolution will be tabled by the management to request the members to consider the resignation of the chairman". Raha played the last card putting his job on the line as clearly the position was untenable and the Rs 6.5 lakh per annum job was not worth it. Aiyar returned from a three-nation tour and capped the ruckus with a salutary "I have no intention of making a competent man resign".

This is not the first spat between the ministry and the ONGC chief. A few months ago the ministry blocked an LNG project in Mangalore and it was only when the PMO intervened that it was cleared. The current brawl too has a history. Apparently the DGH wanted access to exploration data vested with ONGC which the company was loath to part with. Reason: it feared leakage both within and outside the country. Believe it or not, to overcome this it was mooted that Sibal joined the ONGC board to gain access. In this tug of war, it scarcely mattered that ONGC is among the most valuable PSUs, controls over two-thirds of the petro production in the country and has a market capitalisation of over Rs 1,50,000 crore.

PENDING PRESCRIPTION

If the Government acts on the report of the Arjun Sengupta Adhoc Committee on PSU empowerment lying with the Cabinet such public brawls can be avoided. To encourage arms length relationship between ministry and company, appoint supervisory board including finance minister, minister in charge, five independent experts in the field, secretary of department and CEO. There should be a negative list of areas which must be kept away from the intervention of government (except for respective jurisdiction of CAG and CVC). No more than two officers should be nominated as board members by the government on the board of Navratna, Miniratna and Central PSEs. Ministry should not give instruction directly to management. Ministry should communicate through board of directors. If directive must be issued it should be in the form of a presidential directive approved by the cabinet. Adverse action like suspension, extension or termination must be referred to the supervisory body. Appointments to board level positions must be till superannuation.

It isn't just the Petroleum Ministry where babus and PSU chiefs are at loggerheads. There are storms brewing at the Power Ministry too. Nor is it just this regime. During the NDA rule, a PSU chief accused a minister of blackmailing him with a vigilance enquiry. Ever since the temples of modern India were created there has been a constant tussle among its priests. While theoretically PSUs are owned by the people of India, they are treated like fiefdoms. While babus constantly suspect corruption, PSU chiefs feel bureaucrats are only used to treating all enterprise not as a profit centres but as an expenditure outlet. Thanks to the possibility of milking them for goodies-from mere ads to paying bills to laying pipelines for ministers in their constituency. Add to this the lure of doling jobs and/or contracts. ONGC alone issues contracts worth Rs 15,000 crore every year.

Navratnas by definition are allowed total freedom in raising resources and making investments but in practice every foreign trip of an operational director is cleared by the ministry. Department of Public Enterprises guidelines specify that no PSU will have more than one nominee from the administrative ministry but every ministry with a PSU violates this. SEBI guidelines require 50 per cent of the directors to be independent by the year end but PSUs are packed with babus. As VSNL Chairman Subodh Bhargava points out, the government keeps repeating its mistake by appointing non-independent directors. "Representatives can be from the government but not from the ministry supervising the PSU." Independence is, of course, in the eye of the beholder. Notwithstanding SEBI's views, the Irani Committee has suggested that only a third need be independent. And Prem Gupta, minister for company affairs, believes that corporate governance "should be self regulated and not imposed. It is for the stakeholders and the market to take a view".

But till the government is the major stakeholder and ministries feel they-and not the people-own the companies, the brawls will continue. Which is why G.V. Ramakrishna, former disinvestment commissioner, suggested that PSUs be put under a trust and out of ministries. The other option is Aiyar's dream: create behemoths. Then they will be too big to mess around with.

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