by R. Sasankan
E.F.
Schumacher is the economist who coined the phrase “small is beautiful” –
and blasted the conventional wisdom that bigger is better.
Finance minister Arun Jaitley has rubbished the notion by coming up with
the startling suggestion to merge state-owned oil companies to create
an oil behemoth that will emerge as a dominant player in the oil and gas
space.
Put simply, this is a recipe for disaster and attempts to merge
organisations into a monolith that will spark a clash of cultures and
undermine the operational efficiency of the new entity. The merger of
Air India and Indian Airlines had ruined two reasonably well-run
aviation companies. The tragedy could be worse in the case of the oil
sector.
The first thing that crossed my mind was that such a merger would ensure
the pernicious culture of ONGC and IOC would overwhelm the relatively
clean and efficient culture that exists in the smaller entities and
foist a Delhi-centric, politics-inspired culture of pelf and privilege
that would sap innovation and enterprise and spread the rot of
corruption throughout the new entity.
I
have seen this play out in many ways in the past three decades that I
have covered the petroleum sector and nowhere has this been more evident
than at the time of picking top executives at state-owned units.
Back in the 1980s, the Public Enterprises Selection Board (PESB) had
forwarded a list of three candidates to the Ministry of Petroleum and
Natural Gas from which it could pick one for the post of director
(finance) for Oil and Natural Gas Commission (ONGC).
The usual practice is that the candidate who tops the list is given
first preference. It is only when this person cannot be appointed for
some reason that the second nominee gets the chance to be selected.
The
candidate who topped the list hailed from a south Indian state. Though
politically a lightweight, he was acknowledged to be upright, competent
and non-controversial. That is when the shenanigans began. Suddenly, his
house and office were raided by the Central Bureau of Investigation
(CBI) and this was promptly reported in the media to discredit his
credentials.
Within a couple of weeks, the Ministry initiated the process of
selecting the number two candidate on the list and he was appointed
director (finance) of ONGC. Immediately after that the CBI acquitted the
raided candidate. Buta Singh was the country’s home minister. The
victim resigned from ONGC and took up a job with a Mumbai-based company.
We have heard of similar developments in African countries. This
happened in India and that too in the country’s bluest of the blue chip
company, ONGC. Candidates with deep pockets can influence the
politicians and enforcement agencies and ONGC has always had candidates
with such deep pockets.
In
the 1990s, the PESB recommended a list of three candidates for the post
of director (HR) of Bharat Petroleum Corporation Ltd (BPCL). The list
contained the name of an executive director of Indian Oil Corporation
(IOC) but he was placed second on the list. This person was so
influential that he wanted to wrest the post.
While forwarding the list to the Appointment’s Committee of the Cabinet,
the then petroleum minister pushed up the name of the IOC man to the
top and downgraded the person who was originally named as the top
candidate to the second position. The then President of India, K.R.
Narayanan, came to know about this injustice and took up the matter with
then Prime Minister Atal Behari Vajpayee. Almost simultaneously, the
very same IOC candidate was blasted by the then chairman M.A. Pathan for
inspiring an anonymous letter against his colleague who was in the race
for the post of director in the company.
I have pointed out these few instances in ONGC and IOC to substantiate
my point that in terms of basic culture, these two oil giants have a lot
in common. But this cannot be the culture that Prime Minister Narendra
Modi would want to encourage in the integrated oil giant. The proximity
of these companies to the centre of power by virtue of being Delhi-based
has wrecked their corporate culture.
I
asked a few renowned oil men to gauge their views on Jaitley’s
proposal. Although they did not question the intention behind the move,
they denounced it as downright ridiculous. Instead, they suggested
further bifurcation of ONGC and IOC to make them more efficient.
The Mumbai-based BPCL and HPCL have an entirely different culture. These
nationalised PSUs have their roots in Shell and Caltex and they simply
cannot co-exist with ONGC and IOC. By any reckoning, BPCL and HPCL are
far more transparent than ONGC and IOC.
GAIL was created out of ONGC. But it had the fortune of being headed by
Vineet Nayyar, an honest man who, with his director finance K.K. Kapoor
who later became its CMD, eliminated the wasteful culture of ONGC and
IOC. GAIL has a proper system. It had even resisted pressure from a
senior official of the ministry to favour the French contractor for the
1400 km long HBJ pipeline in a dispute settlement. Though Delhi-based,
it is substantially different from ONGC and IOC in all areas of
corporate governance.
There is a world of difference between Oil India Ltd (OIL), the junior
upstream company, and ONGC. Although ONGC is a far bigger, OIL men
prefer their separate identity.
In an integrated set-up, it will be ONGC and IOC that will call the
shots. By now, Prime Minister Narendra Modi should be quite familiar
with the culture of Delhi that allows unscrupulous people to manipulate
the system to grab the spoils of office. Almost all politicians in the
country prefer a culture of patronage for their own devious ends. This
is precisely where the merger plan is going to flounder.
Arun Jaitley’s proposal comes at a time when even the largest
multinationals are questioning the wisdom of vertical integration. In
recent years, Conoco realized that there was no particular benefit from
having downstream and midstream operations and decided to break up them
up into two companies. Marathon adopted a similar strategy earlier.
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