by R. Sasankan
Jawaharlal Nehru was determined to take a nascent nation down the road
to self-sufficiency. The giant public sector companies that he conceived
were going to be the “temples of modern India” – and the cornerstone of
the socialistic pattern of society that he wanted to create. His
daughter, Indira Gandhi, stuck gamely to that mission. But in the end,
the monopolistic monoliths that resulted from their endeavours were
mired in the sloughs of inefficiency and corruption, and became
self-serving minions of the ministers and bureaucrats who roamed the
labyrinths of power.
One
of the greatest weaknesses in the Indian economy in the early days was
its excessive dependence on imported fuel to feed the maws of an
incipient, industrialising economy. That is when K.D. Malaviya emerged
as a visionary petroleum minister. He was the one who set the template
for the Oil and Natural Gas Commission (which later became a
corporation). It would have just one remit: concentrate on exploration
and production, and not waste its energy in refining and marketing. It
was this conviction that prompted him to hand over the ONGC-owned
Gujarat Refinery to Indian Oil Corporation (IOC) in the 1970s.
The 1980s could be rated as the golden period of India’s petroleum
sector. It was during this period that domestic crude production surged
and was able to meet 70 per cent of the country’s requirements. This was
possible because of the accelerated crude production plan which ONGC
embarked in Bombay High. It is a different story that the accelerated
production damaged the Bombay High reservoir from which ONGC could never
recover even after investing millions of dollars. Today, the country’s
oil production meets only 20 per cent of its oil requirements. The
self-sufficiency mantra – which underpinned the socialist economy that
Nehru and his daughter planned – has completely unravelled under the
pressures of a rapidly globalising world.
In
the 1980s, ONGC was headed by Col S.P. Wahi, a colourful, moustachioed
personality who enjoyed some political clout that enabled him to get two
extensions of his term of office. It was during this period that the
Ministry of Petroleum and Natural Gas decided to take away gas
operations from ONGC and create a separate company for gas
transportation. Col Wahi moved heaven and earth to scuttle the move.
Wahi had powerful enemies in the bureaucracy as he never called on any
bureaucrat below the level of secretary and always focussed on the
political bosses. This time round, his political connections did not
work and the bureaucrats outsmarted him. In 1984, Gas Authority of India
Ltd (GAIL) was formed which executed the 1800 km-long HBJ gas pipeline.
GAIL is a reasonably efficient company with a financial discipline
which could not be seen in other PSUs. Among major PSUs, it had the
leanest PR (Corporate Communications), a yardstick journalists apply to
measure the efficiency of a PSU.
GAIL was founded with the objective of laying, building, operating
pipelines for transportation of gas. Now, it has become more of a
marketer of gas than a transporter. GAIL would have been far larger than
what it is today had the government assigned to it the task of
importing LNG. This was a legitimate claim of GAIL, which was scuttled
when the petroleum ministry decided to float Petronet LNG Ltd (PLL) as a
private company with equity stake of four PSU promoters capped at a
combined stake of 50 per cent.
Ethically,
there is a conflict of interest in GAIL’s role as a transporter and
marketer of gas through its own pipeline. The downstream regulator had
already asked it to spin off its marketing business into a separate
company, leaving GAIL with the primary function of laying, building,
operating gas pipelines.
But the wheels of time do turn around slowly – and suddenly we now have a
throwback to the culture of creating giant monoliths again in the
petroleum sector. This time it is through mergers. HPCL has already gone
to ONGC. The burning question now is who will get the bifurcated GAIL.
There are two claimants: Indian Oil Corporation and Bharat Petroleum
Corporation Ltd (BPCL).
One does not need to have great astrological skills to predict the
winner. When it comes to political clout, BPCL is no match to IOC.
Location-wise, IOC is the closest to the centre of power. IOC management
does not identify with political parties but only with the government
in power. This flexibility has enabled IOC to be in the good books of
the successive governments. BPCL and HPCL, on the other hand, have
always been very wary of hobnobbing with the powers that be in Delhi.
This disdain towards the bureaucracy probably stems from the cultures
that were spawned in these organisations which still lay great store by
their foreign ancestry, tracing their history to giants like Shell, Esso
and Caltex. They have been less aggressive in lobbying for strategies
to increase their fiefdoms, quite unlike IOC and ONGC.
IOC appears to have been preparing for this well in advance. Its
aggressive foray into the area of LNG terminals by acquiring stakes in
two of the proposed Adani-promoted terminals was aimed at becoming the
country’s largest gas player. IOC’s 5 million tonne per annum LNG
terminal on the east coast at Ennore near Chennai is expected to be
commissioned in the near future. IOC already markets PLL’s imported LNG
and imports a few cargoes of LNG on its own. It owns the largest
petroleum pipeline network. It is already the country’s largest crude
refiner and petroleum products marketer. The proposed 60 million tonne
refinery on the West Coast, in which it will have a 50 per cent stake,
will elevate it to a different level where it will even dwarf ONGC whose
crude production tends to stagnate in the absence of commercial
discoveries.
IOC’s present leadership is quite aggressive. Its chairman and managing
director (CMD) Sanjeev Singh does not lack political clout. IOC had
invariably displayed a preference for marketing people when it comes to
picking its chief executive from within. The popular myth is that IOC
needs to be led by a marketing expert as it is basically a marketing
company. But there is a truth that is lost here: marketing of petroleum
products in an energy-starved country like India does not require much
skill. Sanjeev Singh used to head IOC’s refinery division – and was
responsible for spearheading the creation of the corporation’s two
biggest greenfield refineries in Panipat and Paradip. It’s been rare for
the refinery division to throw up a chief executive. But Singh is a
fierce fighter and, on present reckoning, he should be able to tilt the
outcome of the battle for GAIL in IOC favour.
To download the latest issue 'Volume 31 Issue 1 - April 10, 2024', click here |