Sunil Jain: Mani checks on government abuse

Author: Sunil Jain
Publication: Business Standard
Date: May 30, 2005
URL: http://www.businessstandard.com/common/storypage.php?storyflag=y&leftnm=lmnu5&leftindx=5&lselect=2&chklogin=N&autono=190168

This piece is not meant to be about petroleum minister Mani Shankar Aiyar and the way in which he treats the PSUs under his administrative charge, but one can't really help it since even the Central Vigilance Commission has been forced to comment on the manner in which the petroleum ministry is running its PSUs.
 
Forget about Mani's refusal to allow the oil PSUs to hike prices of petrol and diesel since that is a Cabinet decision, the supposed navratna PSUs have no powers to do anything without the ministry's approval.
 
ONGC, for instance, has been able to commission just one of the 1,600 petrol pumps it has a licence for, since the ministry refuses to allow it to set up a joint venture with another PSU for this purpose-the JV is critical since the resulting firm will no longer be a PSU and will therefore be able to function with the speed of a private sector firm.
 
It is difficult to say whether this delay is due to the normal ministerial lethargy or whether it has something to do with Mani's belief that ONGC should be (the only global oil major) in only one part of the hydrocarbon sector, leaving oil marketing to other PSUs.
 
In the case that the CVC has referred to, GAIL floated a tender to buy pipes for its 600-km-long Dahej-Uran natural gas pipeline. GAIL opted for what are called LSAW pipes since it found these to be better suited for its needs.
 
Mani's ministry, however, felt that HSAW pipes should also be considered and asked GAIL to fall in line-since GAIL didn't agree, the ministry issued what is called a Presidential Directive (literally an order from the President of India, this time signed in Delhi, not Moscow!) and got GAIL to change its tender!
 
If memory serves me right, this is probably the second Presidential Directive ever issued to PSUs, the first one dealt with reservation of jobs. This really tells you to what extent the government micro-manages PSUs, usually to the latter's loss-it's not just Mani, most ministers do the same thing.
 
Normally, this is enough reason for most, including this author, to say this is why PSUs need to be sold, that the government is certain to abuse them and so lower profitability and even induce losses.
 
But howsoever desirable that may be, it's just not going to happen in a government that has taken a year to even start selling equity in PSUs. Besides, it is never going to be easy to sell off a company like ONGC whose net worth is over Rs 50,000 crore and market cap around Rs 125,000 crore.
 
So what's the solution? How do you really get the government off the PSUs' back, especially since solutions such as the navratna ones haven't really worked, as the GAIL example clearly shows. The UPA appointed Dr Arjun Sengupta to chair a group to come up with some suggestions, and the committee comprised former bureaucrats and PSU chiefs, among others.
 
While retaining the accountability of PSUs to Parliament through the administrative ministries, the role of the CAG and the CVC, the Public Enterprises Selection Board (PESB) and so on (so the guardians of the PSUs, the Left, cannot complain), the Sengupta committee has come up with some very imaginative solutions, all based on the principle that disclosure is the best antidote to ministerial interference.
 
Where does the problem really lie today? The fact that ministers/bureaucrats get to decide what kind of pipes a PSU will buy, to carry on with the earlier example, is clearly related to the fact that it is they that decide who will head a PSU, whether the current incumbent will get an extension, whether an inquiry will be initiated against him, and so on.
 
This is where the Senguptas' panel (there were three Senguptas on it!) comes up with the suggestion of six overarching supervisory boards to broadly take care of all sectors of the economy and the PSUs in each.
 
Each ten-member body will have five distinguished people in the field nominated by the Prime Minister, the finance minister, and the heavy industries minister as permanent members; the other three by rotation will be the secretary and minister of the administrative ministry and the CMD of the PSU whose future is at stake.
 
Under the plan, the board acts as a neutral buffer. While the PESB will decide on whether the existing CMD should get another tenure, for instance, the board will also have a view; similarly if there's a vigilance complaint and the CVC comes up with a report, the board will also formulate its view-this, for instance, will reconcile the CAG's typical accountant's perspective with good commercial sense.
 
In other words, the board acts as a neutral observer and while it is always possible the government will ride roughshod over the board, the problem is that the board's decisions will be public and therefore difficult to dismiss.
 
The really far-reaching recommendations of course pertain to the negative list, a list of things the ministry cannot do, like influence pricing and distribution of products, appointment of dealers and procurement of supplies, and so on (these actions, needless to say, will still continue to come under the purview of the CAG and CVC).
 
The ministry will not issue firmans to a PSU, but say whatever it has to through its directors on the PSU's board, and if the overall board overrules them, then so be it. If a Presidential Directive is to be issued, this will have to be cleared by the Cabinet so that every minister knows why it is being done (why not lay it in Parliament since that will really expose the ministry?).
 
While the PSUs naturally are to be responsible to Parliament, the setting up of a screening committee is suggested to examine the nature of MPs' questions as these take up a lot of top managerial time and often contain sensitive business information.
 
Since the fundamental authority of Parliament and the ministries over PSUs is not sought to be changed, there is no reason not to accept the report, unless the UPA ministers want to continue to play mischief with PSUs.
 

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