ONGC may face delisting

Govt appointments violate Sebi norms

If the Oil and Natural Gas Corporation (ONGC) board in its meeting tomorrow co-opts two new government nominees as directors, it will violate Clause 49 of the Securities and Exchange Board of India's (Sebi) listing norms.

Clause 49 requires that 50 per cent of a company's board should comprise independent directors. Violation of the clause, which will come into effect from December 2005, leads to delisting of the company.

The government has approved the appointment of Director-General of Hydrocarbons VK Sibal and additional secretary in the ministry of petroleum, MS Srinivasan, on the ONGC board, in addition to the existing three government nominees.

ONGC has 14 directors and new Sebi's guideline prescribe that at least 50 per cent of the board should be made up of non-executive, independent directors.

With six functional directors, including chairman and managing director Subir Raha, and five government nominees, the ONGC board would have only three independent directors.

There is confusion regarding the status of Indian Oil Corporation's nominee NK Nayyar.Since IOC holds 9.6 per cent equity in ONGC, its representation should not be considered as a government nominee, company officials said.

Failure to comply with Clause 49 (corporate governance) of Sebi's listing norms is punishable with imprisonment of up to 10 years or a fine of up to Rs 25 crore or both.

With the government taking a stand that the directorate general of hydrocarbon was a regulator for the upstream sector, Sibal's appointment is seen as being favourable to the public sector company.

"With the fifth round of bidding under the New Exploration and Licensing Policy wraping up on May 31, the independence of DGH is under question," said a Reliance executive adding that such moves sent wrong signals to prospective bidders.

"DGH is an extension of the government arm and the appointment of its director general should not be drawn into controversy," said a ministry official adding that other public sector undertakings would also face delisting if Sebi adheres to the December 31, 2005 deadline.

Among the current government nominees on the board are two representatives from the ministry of petroleum and one from the finance ministry.

Nominating foul

STIPULATION Clause 49 of Sebi's guidelines requires that half of the board should comprise independent directors

DELIST TRIGGER The ministry has nominated Director-General of Hydrocarbons VK Sibal and Additional Secretary, Petroleum, MS Srinivasan. That takes the number of government nominees to five

ONGC SCENE Of the 14 board members, six are functional directors and five are government nominees. This leaves only three independent directors on board