ONGC gets its act together

The focus is on key areas and restructuring of operations

Murali Gopalan

There is a new sense of purpose at the Oil and Natural Gas Corporation (ONGC) with radical changes being implemented to enhance efficiency. The new corporate rejuvenation campaign will strive to recharge the organisation to meet the challenges and opportunities in an era of market-determined pricing, which will be effective from April next year.

The board’s responsibilities have been restructured to promote greater autonomy and accountability. A new slot has been created for director (corporate services) who will now be entrusted with key functions like planning, budgeting, engineering services, materials, environmental management and marketing. Even while the post of director (finance) needs to be filled up, others on the board have their tasks cut out in their new responsibilities. V K Sharma will be the director (offshore) and R C Gourh, director (onshore). Y B Sinha will continue as director (exploration) while N Lal will now be responsible for technical and field services. Jauhari Lal’s new portfolio will be human resources development and not merely personnel as it was earlier.

ONGC has also identified the key role that its five streams will play in the new environment. These comprise assets (offshore and onshore), basins, services, institutes and regions. The western and eastern regional centres will no longer be mere business centres but will provide more infrastructure support. Effectively, ONGC has acknowledged that each of these five pillars has the potential to contribute to the organisation’s financial strength.

The entire exercise is largely a result of the recommendations made by international consultant McKinsey, which was of the view that an asset-based structure was the ideal model for ONGC. Hence, this has been implemented for both offshore and onshore (three and seven assets respectively) as also for the nine basins. Effectively, there will now be 19 strategic business centres or virtual corporates where, say, the director (offshore) will be the virtual CEO and the asset manager will become the managing director. The same relationship will apply to the directors, onshore and exploration. This will ensure that these individuals take key decisions without referring them to the chairman and managing director. In his turn, the CMD will finalise a MoU with these individuals managing these asset structures and fix targets.

Decentralisation of powers will mean that the ONGC chief will have time to cater to other vital functions on a day-to-day basis. His core team of directors will now be able to focus better on their jobs and hone their skills in the process. Eventually, it is this sense of independence that will allow individuals to grow and help their organisation prosper in the bargain. The top priority is to ensure that production of crude does not get affected, as the deadline for the administered pricing mechanism draws close, and as regards finalising supply contracts with downstream users, the take-or-pay rule will become mandatory.

The new CMD, Subir Raha, has made it equally clear that there is no question of multinational participation in the development of Mumbai High. The government has already announced that ONGC will not be privatised. Mumbai High is the lifeline of the corporation and in that sense will remain within its fold, he says. Raha has also reiterated that ONGC will focus on key areas of exploration and production, both here and abroad, which seems to indicate that plans to diversify into refining and marketing have taken a backseat for now. The decision seems sound given that there is enough and more to do on the upstream front and there is really no reason to fritter resources on new areas of investment.

Even while navratna counterparts like Indian Oil Corporation (IOC) and Bharat Petroleum Corporation (BPCL) have been in talks with ONGC to participate in key areas of growth, the latter is taking one thing at a time. The other area where ONGC possibly needs to devote its energies is the new economy. At a time when companies have dispensed with paperwork and have increasingly resorted to the Internet as a means of communication, the upstream major has made no effort to get on with the changing times. All this seems to be a thing of the past now with ONGC creating a new infocom service.

Moving on to other developments in the oil sector, the latest is that IBP has dashed off a letter to the petroleum ministry stating its opposition to the transfer of its 25 per cent stake in Indian Oiltanking (IOTL) — a 50:25:25 venture of Oiltanking, IOC and IBP — to IOC. The ministry had said that this was being done to protect the interests of its PSU oil companies post-disinvestment in IBP. It had also said that sale could help the stand-alone marketeer liquidate a part of its dues with the Oil Industry Development Board. IOC maintains that this is a fair sale given its contribution to IOTL’s growth though IBP believes that the decision should have been approved by at least its own board.

Murali Gopalan is editor of Auto Monitor, a Tata Infomedia Publication