The Prime Minister had lamented recently that the chiefs of public sector enterprises(PSE) were ?largely disempowered by the government?. Bureaucratic interference makes the decision-making process at some of our best PSEs suboptimal. So, as head of the UPA government, what is Manmohan Singh doing about this? Many of our good PSEs today are listed on the stock markets and operate in a globally competitive environment. Suboptimal decision-making in critical areas has a direct and adverse impact on both shareholder value and the profitability of the company. In a highly competitive environment, the slide in market share and profitability happens much faster than we realise. Look at the way BSNL has rapidly lost market share and ceded its pre-eminent position over the last five years. A good part of BSNL?s decline can be explained by lack of a coherent strategy to grow the company and to compete with the ambitious private telecom service providers.
Deliberate delays in tendering equipment worth tens of billions of dollars inordinately slowed its network expansion and gave away crucial catchup time to private players. Remember BSNL was way ahead of private players in terms of having the most extensive national telecom services network. There was a time when only BSNL mobile phones worked if you traveled in India?s deeper interiors. All that advantage is gone now.
The BSNL example is instructive because many other profitable PSEs are likely to meet the same fate. ONGC is another leading player that may go down that path, with ambitious and focused private sector players already into oil exploration. In the past, ONGC could afford to be complacent as it was a monopoly. In a more competitive environment, ONGC needs to pull up its socks. However, ONGC can compete on a level playing field only if it gets genuine operational autonomy. Merely designating a company Maharatna or Navaratna is not good enough. Last week, the ONGC management was forced to cancel big tenders for selecting well-equipped ships that do the job of maintaining undersea exploration infrastructure simply because politically motivated ?verbal instructions? came from the ministry, seeking modification of tender specifications. Against the backdrop of the BP oil spill, which has shocked the world, ONGC is trying to make specifications for maintenance vessels more stringent. But politics is interfering with this process. ONGC officials express deep frustration over this.
Last week, at a conference organised by the CII on governance issues related to PSEs, the head of Hindustan Copper Ltd, Mr Shakeel Ahmed, spoke his heart out. He said managements of better-run PSEs must seriously assess how much of their real potential is not being achieved. Citing his own example, Mr Ahmed said Hindustan Copper Ltd was a mini ratna and therefore had a limit on how much investment it can make automatically. For higher investment decisions, the file goes to the board, the administrative ministry, the Cabinet Committee on Economic Affairs and so on. In one case, Ahmed has already waited three months for the final Cabinet clearance for a simple investment decision.
Ahmed argued that PSEs are suffering from overgovernance from various government institutions. This comes in the way of genuine risk-taking, which is part of any business enterprise. Ahmed?s anguish is shared by the larger PSE community. A CII-Deloitte joint study conducted a survey of officials across all PSEs, which bears this out.
The survey lists some of the big impediments to PSE?s competitiveness in the current globalised business environment. PSEs are subjected to dual audit, one by the statutory auditor and the other by the Comptroller and Auditor General (CAG), resulting in duplicating of efforts by the officials.
Second, compliance with the Central Vigilance Commission(CVC) requirements in many cases delays decision-making. Since PSEs are owned by the government, they have to adhere to disclosures under the RTI act. The time required for responding to various Parliamentary Committees slows down decision-making.
One of the biggest hurdles to efficiency is the tendering process, which is marked by political interference all the time. You just have to study the delays caused in some of the recent tenders floated by ONGC or NTPC, and it will become amply clear why their projects take so much longer to get off the ground.
So, Prime Minister Manmohan Singh was dead right when he said PSE managements were disempowered by the government, which owns these companies. How do you insulate the PSEs from the owner?s curse and give it real operational autonomy. This can be done by separating ownership from day-to-day management. This must be done in both letter and spirit. There is an even greater need today to insulate the PSEs from administrative ministries run by rapacious coalition partners who look at juicy ministries as instruments to fill their party coffers.
With coalition politics having made PSEs that much more vulnerable, the Prime Minister must think of radically altering the governance structure of PSEs. One radical idea is to put many profitable and listed PSEs under one holding company. It could be modelled on Tata Sons, under which dozens of Tata companies are governed.
The holding company housing all the PSEs can act as a managing agency for which there is a provision under the Companies Act. The holding company must preferably be kept under the Prime Minister?s Office (PMO). The PMO must act as the administrative ministry for all profitable PSEs above a certain size. This will insulate the PSEs from individual politicians who may want to milk them. It could have a diverse board representation reflecting the true character of the public sector. Any takers?
mk.venu@expressindia.com