Subir Roy: What is good for ONGC?

VALUE FOR MONEY

The unseemly fracas over ONGC threatens to establish that the UPA government, despite the wave of confidence in its economic management, is really no different from many earlier dispensations when it comes to handling the public sector.

Worse, Petroleum Minister Mani Shankar Aiyar, despite his record of service to the cause of grassroots democracy, is no different from many of his predecessors who treated the state-owned oil companies as their personal fiefdoms.

Aiyar has so far kept himself personally in the background but bureaucrats in the ministry will hardly stick their necks out without a nod from him. So he must be assumed to be behind it all unless things are established to the contrary.

He may yet back off seeing which way the prime minister is inclined, as seems possible at the time of writing. But if a new regime for the public sector, a thorough reform of it, does not emerge then nothing will really have changed. Till then, public discourse over what is good for the likes of ONGC and the public sector must continue.

The tussle between the minister and the ONGC chief became public when the ministry opposed ONGC's plan to make a massive investment in LNG, power and petrochemicals in Mangalore. The project was eventually cleared by the prime minister.

The approval had a lot to do with the keen interest of the Congress-led Karnataka government in it, though it was as much Raha's baby. In the face off with the ministry Raha has so far had a good press as he is seen to have done well by ONGC.

But more important is the principle of the thing. Public sector undertaking (PSU) heads, like any other business heads, should be sacked when they lose the support of their widely held shareholding community, not the minister and his officials. To enable this it is necessary to change the shareholding pattern, with safeguards.

It is by now clear to all those who are not ideologically blinded or personally motivated that the government should get out of the purely commercial space and confine its resources, both men and money, to the social sector and making sure that the markets and natural monopolies run properly.

In the social sector also the aim must increasingly be to improve delivery by enlisting private and market forces while the government continues to fund on behalf of the poor who cannot pay for themselves.

Thus, opinion is gaining ground that the best way to ensure that poor people get some education and healthcare benefits, is to give them vouchers to shop around in urban areas and encourage community ownership in rural areas, if necessary through panchayati raj institutions.

In this scheme of things, state ownership of steel mills and oil companies makes little sense. In fact, state-owned oil companies in third world countries often get embroiled in political power play and corruption.

The best governance structure for large companies that have to survive in a competitive globalised world is that which results from widely distributed publicly traded share holding, overseen by an independent board with independent directors on it.

Such a system will cause the right kind of management to come into place and equip it with the nimble footedness needed to take decisions that have huge financial consequences and brook no delay.

Those opposed to private ownership often raise the red herring of the national interest, seeking to posit one against the other. But there are two easy ways of resolving this perceived conflict. The government can retain a golden share in privatsied units.

In case it feels a matter of acute national interest is at stake, it can intervene, place a report on it in parliament at the earliest opportunity and get its approval.

The other model, proposed by G V Ramakrishna, former head of the Disinvestment Commission, was to take government holding to below 50 per cent (putting them out of the purview of the CAG, CVC and COPU) and then pass it on to a trust or trust company. This entity can be put in the hands of a few eminent trustees who can be safely expected to take care of the national interest.

The most telling aspect of the entire ONGC fracas is the total public silence of Left leaders. As defenders of state ownership they should surely have a view on how large PSUs which have to compete globally should be run. Their silence can denote one of the two possibilities.

They believe that the final ownership of PSUs must be exercised by ministers through their officials. If they do then they are thoroughly out of date, without an idea of how complex running large companies has become in the current global situation. Or they may not really care.

Their limited agenda is to look after their constituency among public sector employees and criticise when there is mismanagement and graft but do nothing to put a proper system in place. It is tragic that the greatest defenders of the public sector either do not know or do not care for what is good for it.

sub@business-standard.com