The Hindu Business Line : Uncertainty at the top in ONGC

It is ironic that even as it was dragging its feet on appointing a CMD for the PSU, the government was criticising ONGC for not meeting targets and enhancing output from Bombay High. The delay in choosing a head for this Fortune 500 company does little good for the government's reformist credentials.

It is a $12-billion company ranked 402 in the Fortune Global 500 list. It leads the list of Indian companies in the Forbes Global 2000 list. It is one of the most valuable companies in India whose stock ranks amongst the top three in terms of market capitalisation on the Bombay Stock Exchange.

Foreign Institutional Investors hold 9 per cent of the company's equity and the stock is a market favourite too. Yet, it is a company that has been without a permanent head for eight months now and is set to remain so for the next four months.

Welcome to Oil and Natural Gas Corporation (ONGC), the flag-bearer of India's energy security, whose stand-in Chairman and Managing Director was denied a confirmation in that position by the government last week.

For those not tuned in, here is the story. In May 2006, when Mr Subir Raha retired as Chairman and Managing Director of the company, Mr R. S. Sharma, Director (Finance), was asked to take interim charge while the process of finding a successor was set in motion.

The panel that selects CEOs for public sector companies, the Public Enterprises Selection Board (PESB), is understood to have finalised two names, including Mr Sharma's, and sent its recommendation to the government by end-August. If you think this is bad, because a temporary CMD ran the company for three months, consider what followed. It took the authority concerned a further five months to make up its mind and reject both the names recommended by the PESB. Incidentally, the second name was that of Mr A. K. Hazarika, Director (Onshore) of ONGC.

The result: ONGC has been without a permanent head for the last eight months. There are several questions that arise now.

Governance issues

Why was the process not initiated well before the incumbent chairman retired? Why did it take five months for the government to reject the two candidates? Why the sudden suggestion that the field should be thrown open to candidates from the private sector too?

Does the government really believe that someone from the private sector is going to volunteer for selection after seeing the treatment meted out to ONGC and the caretaker CMD?

The episode raises the larger question of corporate governance in Public Sector Units and the role of the government as the dominant shareholder.

Granted the dominant shareholder has the right to name his candidate to head the company, but should there be no democracy at all when it comes to PSUs? ONGC operates in an industry where quick decisions are necessary and investment proposals are discussed in millions of dollars, if not billions.

Will a temporary CMD feel motivated to take such decisions especially when he knows that his decisions will be reviewed by his permanent successor?

Effect on stock

It is ironic indeed that even as it was dragging its feet on appointing a CMD, the government was criticising ONGC for not meeting targets and not taking important decisions on enhancing output from the ageing Bombay High fields.

And what about the employees and their morale when they see their CMD being treated in this fashion? What is the signal being sent out to them? It is shocking indeed that such an important company operating in such a critical business is being treated in this manner by the government.

The imbroglio is also not likely to go down well with the market, as ONGC's stock is an important constituent of major indices. Indeed, the stock has lost 3 per cent in the last three trading sessions since news came out of the government's rejection of the two names put up to it for approval.

The entire episode is proof, if necessary, of how PSUs are treated as handmaidens by the government and certainly does no good to the latter's reformist credentials.

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