The big short in oil & gas PSUs: Lack of leadership in sector hurting India

The government deplores the lack of good leadership in these companies but it adds to the problem with sub-optimal appointment practices for chief executives in this sector

How many years should the chairman of a state-owned company have at the job? Last week, the finance ministry decided it should be five years, extendable to 10 years, for the 12 state-owned banks. Curiously, the petroleum and natural gas ministry has decided to offer a three-year term for the job for companies that come under its purview. The other ministry with big state-run companies under it — power — is yet to take a call. But these differences could further delay the appointment of the chief at India’s flagship oil and gas exploration company, ONGC.

Discussions are ongoing within the government over whether there should be uniform, but more merit-based selection criteria for setting the term limit for the chairman’s role in state-owned companies. ONGC has been without a chairman since April 2021 when Shashi Shanker retired after a four-year term. Petroleum sector mandarins, current and former, blame the delay in appointing a successor on the lack of good leadership in the sector.

They might have a point — this week, there were media reports that Arun Kumar Singh, who retired as chairman of BPCL in October, has been shortlisted for the post. If correct, not only will Singh be the first person to become a chairman of a listed state-owned enterprise after reaching 60 years of age, but he will also be the first to become a chairman of a company instead of being its regulator. That’s because Singh was already shortlisted to be the chairman of the Petroleum and Natural Gas Regulatory Board, for which interviews were held in August.

Unlike banks, for which the finance ministry had to amend the Nationalised Banks (Management and Miscellaneous Provisions) Scheme, 1970, last week, there was no bar to offer a five-year term in other sectors. But lack of planning had led to a situation where the terms of corner office holders had begun to come down.

Legendary chairman of ONGC, Subir Raha served the post from 2001 to 2006. He was only 57, when he had to step down, and could have continued for another three years. The year he stepped down, ONGC lost its status as the most valuable company on the Indian markets. His successor RS Sharma served for less than five years and since then others too have had terms of less than five years. But since then, others have had progressively shorter tenures. This time if, instead of Singh, any of the other aspirants had been chosen they all would have had a term of three years or less.

This short tenure partly explains why state-owned oil and gas companies are struggling to get leaders. Add to this inadequate pay compared with private sector peers and the problem only becomes more challenging. Then there is the related problem of operational autonomy but that, former officials say, is also linked to the short term at the helm. It makes the bosses chase short-term goals rather than fight for a long-term strategy.

For instance, S M Vaidya — chairman of India’s largest oil marketing company, IOC — who joined in July 2020, shall have only a three-year term. He will turn 60 next year.

The selection process for ONGC has also run in a rather curious fashion this time. The Public Enterprises Selection Board, which picks candidates for the top jobs in state-owned enterprises, had found no suitable candidate from a pool of nine officers and informed the government accordingly.

Based on their recommendation to set up a fresh search committee, the ministry did so. It also suggested a shorter term of three years but a higher threshold of 60 years of age to choose a panel of names. In most government-run companies, the maximum age limit to become a chairman is 58 years (56 in some cases).

The committee again shortlisted a pool of nine names, but some of them did not appear. IOC Chairman Vaidya and interim chairman of ONGC Alka Mittal both skipped the offer.
 

Not that there were no major names from the private sector bidding for the post. This is in stark contrast to the 26 candidates who appeared for interviews, when Raha retired in 2006. Of course, even then there was a problem, as the candidate, who got the top billing from the committee that had Vijay Kelkar among others, was initially not cleared by the government. R S Sharma got the shoo-in about a year later, in mid-2007.

An industry expert, who requested anonymity, said: “Unless the government decides which companies will remain state owned and which will be privatised, the candidate pool will not expand.”

The disinvestment and asset management department has identified both BPCL and Engineers India as candidates for privatisation in the sector. The government has tried to sell BPCL in 2021 but got no attractive bids.

There is other evidence of lack of leadership in the sector. To resolve a gas price dispute, the petroleum and natural gas ministry had to recall distinguished sector expert Kirit Parikh from retirement this year to head the committee and, more importantly, to convey a sense of impartiality to both the producer and distribution companies such as RIL and Adani Enterprises.

ONGC has its own specific problems. It needs to expand investment quickly. In August this year, it signed an agreement with petroleum giant ExxonMobil to undertake deep water exploration in both the country’s east and west coasts. The non-binding agreement needs additional investment by the Indian company whose budget for capex has hovered at a median Rs 30,000 crore annually for the better part of this decade.

The same problem bedevils expansion plans for the downstream IOC. It has decided to spend over Rs 1 trillion to modernise its refineries, both to expand their capacity and make them environmentally compatible.

The gas disputes at the regulator have just piled up. For long those were held up, since there was no law member and the courts ruled the decisions were not proper in the absence of such a member. Now, the regulator does not have a full-time chairman. In the middle of the energy transition, the absence of leadership in the sector is hurting India.