Privatization through the backdoor

   By Ravi Shanker Kapoor ,  16-Feb-2019
Privatization through the backdoor

The proposed sale of 97 oil and gas fields of ONGC and OIL to private companies is asset stripping

The Narendra Modi government seems keen on the privatization of Oil & Natural Gas Corporation Ltd (ONGC) and Oil India Ltd (OIL) but through the backdoor. While the idea of selling off public sector undertakings (PSUs) is good, the same cannot be said about the manner in which the government wants to do it.

“The National Democratic Alliance (NDA) government is considering a proposal by a high-level committee to take away 97 oil and gas fields being explored by the Oil and Natural Gas Corporation Ltd (ONGC) and Oil India Ltd (OIL) and auction them to private sector energy companies,” Hindustan Times reported on February 13.

This is asset stripping, pure and simple. But asset stripping is done for the sale undervalued companies to help shareholders. When the assets of a firm like land and brand is valuable but the management is not able to run it for some reason, assets are torn apart, sold, and payouts made to the shareholders. But ONGC and OIL are not loss-making PSUs; in fact, their contribution to the total profit that PSUs make is quite large. But the government is still doing it.

The committee, headed by NITI Aayog Vice-Chairman Rajiv Kumar, included top officials including Cabinet Secretary P.K. Sinha, Petroleum Secretary M.M. Kutty, Department of Economic Affairs Secretary Subhash Chandra Garg, ONGC chairman Shashi Shankar, and NITI Aayog CEO Amitabh Kant. It recommended “complete marketing and pricing freedom” to potential investors for the 97 blocks. These blocks are part of the 149 marginal fields contributing about 5 per cent of the country’s total oil and gas production.

While letting ONGC and OIL to retain 52 of the remainder fields, the committee has made it conditional on delivery in terms of production and financial performance within a definite time frame. In its report, the panel said, “In these retained fields, NOCs [national oil companies] need to adhere to approved production profile. If they fail, even these fields shall be considered for taking back and privatization by the government.”

“As the largest O&G producer in one of the most energy-hungry & dominant economies on the global map, #ONGC does see a lot of opportunitis in this ‘New World’ order of energy” @CMD_ONGC Shashi Shanker at CEO Conclave @Petrotech2019 @PetroleumMin @fipiind @pallab_ongc @HPCL @ANI

— ONGC (@ONGC_) February 15, 2019

But this is privatization, so why not do it upfront? Why go a roundabout way? As for resistance from various quarters, it will always be there. As it is, ONGC executives are against asset stripping. They made it clear in December 2017; they’ll do that again. Other activists opposed to economic reforms in general and privatization in general will also scream against asset stripping. If the government has decided to face their ire, which it has to if it goes ahead with the sale of blocks, then it should face it for higher stakes—that is, privatization.