Oil and Natural Gas Corp (ONGC), India’s most profitable company, will lose Navratna status and the accompanying financial autonomy in a rush to launch the Rs 11,500-crore share sale next month.
The government plans to withdraw both its directors on ONGC’s board to meet the Securities and Exchange Board of India’s condition of having an equal number of functional and independent directors.
The move would, however, lead to ONGC losing its Navratna status, that gives the board freedom to approve investments in projects and up to Rs 1,000 crore in a joint venture company.
The board of a Navratna company can exercise these powers only when it has government-nominated directors. On withdrawal of these directors, ONGC would have to seek a nod from the Public Investment Board for any spending over Rs 100 crore, sources said.
The situation arose after the oil ministry made a mess in nominating independent directors.
ONGC has six functional directors, besides the chairman. It also has two government nominees, taking the total number of functional/promoter directors to nine. Against this, it has four independent directors and needs five more.
Sources said last year, the ministry, under then minister, Murli Deora, selected five people, including a chartered accountant, an Indian Institute of Technology (IIT) professor and a chief executive of a private sector bank for nomination to the board.
However, before the names could go to the Appointments Committee of the Cabinet (ACC), Deora was replaced by S Jaipal Reddy.
Reddy did not send the names to ACC till mid-February and then also recommended only the IIT professor and HDFC Managing Director Renu Sud Karnad.
His reasoning was that as ONGC did not have a permanent chairman after R S Sharma’s retirement and the posts of director (human resources) and director (exploration) were vacant, the effective board strength was six and so only two independent directors were needed.
But before ACC could take a decision, S V Rao was appointed director (exploration), taking the effective board strength to seven.
Also, it came to light that an executive of another company could not be appointed an independent director on a public sector undertaking board, sources said, explaining the reasons for rejection of Karnad’s candidature.
The remaining three people chosen by the oil ministry, too, failed to meet the stiff guidelines. To get around this situation, the government has now decided to withdraw its two directors to bring down the effective board strength to five. ONGC will now be able to meet the Sebi norm with the appointment of the IIT professor.
The government is represented by Sudhir Bhargava, additional secretary in the oil ministry, and L M Vas from the department of economic affairs in the finance ministry.
Vas has since become special secretary and, according to tradition, only officials up to the rank of additional secretary are appointed, sources say, adding both she and Bhargava will be withdrawn.
Instead, a nominee each from oil and finance ministries would be permanent invitees on the board. But this would not be enough to meet the Navaratna norms, they said.
