PSU chiefs have got used to being told what to do
When an ONGC chief goes on national television to justify the Cabinet decision to get his company to buy shares of IOC, to say that it won't have an adverse impact on ONGC’s finances, you know you have a serious problem. ONGC already bears a subsidy burden of R26,418 crore (April-September 2013) which makes its cash reserves insufficient to even meet its capex needs for the next year. And it is still being asked to invest around R2,500 crore to buy shares of IOC which has lost 24% of its value in the last one year while the sensex rose 6%. Indications are things could get anywhere from a bit to a lot worse—the petroleum minister has indicated the government may allow state road transport undertakings to buy diesel at subsidised rates once again, and also that the cap on the number of LPG cylinders that households can get at subsidised rates may be hiked.
But why blame the ONGC chief alone, over the years PSU chiefs have got used to being told what to do. In the case of the loss-ridden BSNL and MTNL, in the news for the bailout package that is being discussed by the EGoM right now, the PSUs agreed to investing tens of thousand crore rupees without even a perfunctory analysis of break-even period. In 2008, the government decided both firms would be given both 3G and BWA spectrum at a price to be decided by what the auctions would yield a year later. And since the companies had no idea what the auction price would be, they had no way of knowing whether the investment would be profitable. In 2010, when they got to know, they ended up shelling out R28,000 crore for the spectrum alone and, as it turns out, the investments were real duds. Neither has made much of a headway in terms of getting customers on 3G and, as part of the bailout package, they will return the BWA spectrum and will be returned the R11,250 crore they shelled out in 2010—there is no clarity on when the money will be refunded except that it will be staggered. You can look at this as a great favour since the government wouldn’t do the same for a private player, or you could look at it as the government partially recompensing the PSUs for a mistake it had made. But either way, you can’t escape the conclusion that the boards of PSUs are so supine, it’s not surprising both bureaucrats and politicians walk all over them.