PSU non-policy

Now that the government appears to have weathered the storm over the proposal to sell the shares of public sector undertakings (PSUs) to the public, the focus needs to shift elsewhere.

The debate on where the money raised from share sales will be used is still to be settled, but the most important issue is really about policy.

What is the government’s policy on PSUs? It is reasonably clear, for instance, that there will be no privatisation of the sort done by the previous NDA government.

But is the policy then to simply allow PSUs to be run as before, at the whims and fancies of various politicians and bureaucrats?

The official response will probably be that nothing of that sort will happen. PSUs are being professionalised and two boards have been appointed to ensure this.

There is the Board for Reconstruction of Public Sector Enterprises (BRPSE), which is looking at strategic alliances between PSUs (it has just suggested this for some construction PSUs) and also at a performance-related salary structure.

Indeed, the Board is also planning to create a separate cadre for PSUs and a National Academy along the lines of the French L’Ecole Nationale d’administration is being considered.

Then there is the Arjun Sengupta committee that has just been given an extension to consider the need for devolving more powers to Navratnas and Miniratnas.

Much of this, unfortunately, is old wine in new bottles. Tens of thousands of crores have been spent over the last decade or so on revival packages of the sort that the BRPSE has come up with now.

Few, if any, have been revived so far; on the other hand, PSUs that have been sold are doing better today. The real issue remains: while it is possible to professionalise PSUs further, how do you do the same with the owners?

In the case of even a supposedly autonomous Navratna like ONGC, which has a professional board, the petroleum ministry has been trying its utmost to stop the company management from expanding its retail footprint.

The company argues that all global oil giants are vertically integrated. They tend to have exploration as well as refining and marketing arms in order to mitigate business cycle risks.

(The price cycles of crude oil and petroleum products tend to peak and trough differently.)

The petroleum ministry argues that ONGC should stick to the knitting and focus on oil exploration.

While this position may have its own logic, it is ironic that the same ministry is also promoting the idea of merging different oil companies to yield exactly the same structure that ONGC is trying to develop internally! The mockery that the ministry has made of the plan to allow free pricing in oil products is now well known.

This is yet another pointer to the fact that it doesn’t matter how much you beef up a PSU’s board. Unless you get the government out of the picture, things are never going to improve.

No matter what any government may say, and despite honest attempts to erect Chinese walls between politicians and companies, the simple truth remains that PSUs are accountable to Parliament through the ministries they fall under.

As long as this remains the case, politicians are almost duty-bound to interfere in how PSUs are run.