by R. Sasankan

Jawaharlal Nehru was determined to take a nascent nation down the road to self-sufficiency. The giant public sector companies that he conceived were going to be the “temples of modern India” – and the cornerstone of the socialistic pattern of society that he wanted to create. His daughter, Indira Gandhi, stuck gamely to that mission. But in the end, the monopolistic monoliths that resulted from their endeavours were mired in the sloughs of inefficiency and corruption, and became self-serving minions of the ministers and bureaucrats who roamed the labyrinths of power.

One of the greatest weaknesses in the Indian economy in the early days was its excessive dependence on imported fuel to feed the maws of an incipient, industrialising economy. That is when K.D. Malaviya emerged as a visionary petroleum minister. He was the one who set the template for the Oil and Natural Gas Commission (which later became a corporation). It would have just one remit: concentrate on exploration and production, and not waste its energy in refining and marketing. It was this conviction that prompted him to hand over the ONGC-owned Gujarat Refinery to Indian Oil Corporation (IOC) in the 1970s.

The 1980s could be rated as the golden period of India’s petroleum sector. It was during this period that domestic crude production surged and was able to meet 70 per cent of the country’s requirements. This was possible because of the accelerated crude production plan which ONGC embarked in Bombay High. It is a different story that the accelerated production damaged the Bombay High reservoir from which ONGC could never recover even after investing millions of dollars. Today, the country’s oil production meets only 20 per cent of its oil requirements. The self-sufficiency mantra – which underpinned the socialist economy that Nehru and his daughter planned – has completely unravelled under the pressures of a rapidly globalising world.

In the 1980s, ONGC was headed by Col S.P. Wahi, a colourful, moustachioed personality who enjoyed some political clout that enabled him to get two extensions of his term of office. It was during this period that the Ministry of Petroleum and Natural Gas decided to take away gas operations from ONGC and create a separate company for gas transportation. Col Wahi moved heaven and earth to scuttle the move. Wahi had powerful enemies in the bureaucracy as he never called on any bureaucrat below the level of secretary and always focussed on the political bosses. This time round, his political connections did not work and the bureaucrats outsmarted him. In 1984, Gas Authority of India Ltd (GAIL) was formed which executed the 1800 km-long HBJ gas pipeline. GAIL is a reasonably efficient company with a financial discipline which could not be seen in other PSUs. Among major PSUs, it had the leanest PR (Corporate Communications), a yardstick journalists apply to measure the efficiency of a PSU.

GAIL was founded with the objective of laying, building, operating pipelines for transportation of gas. Now, it has become more of a marketer of gas than a transporter. GAIL would have been far larger than what it is today had the government assigned to it the task of importing LNG. This was a legitimate claim of GAIL, which was scuttled when the petroleum ministry decided to float Petronet LNG Ltd (PLL) as a private company with equity stake of four PSU promoters capped at a combined stake of 50 per cent.

Ethically, there is a conflict of interest in GAIL’s role as a transporter and marketer of gas through its own pipeline. The downstream regulator had already asked it to spin off its marketing business into a separate company, leaving GAIL with the primary function of laying, building, operating gas pipelines.

But the wheels of time do turn around slowly – and suddenly we now have a throwback to the culture of creating giant monoliths again in the petroleum sector. This time it is through mergers. HPCL has already gone to ONGC. The burning question now is who will get the bifurcated GAIL. There are two claimants: Indian Oil Corporation and Bharat Petroleum Corporation Ltd (BPCL).

One does not need to have great astrological skills to predict the winner. When it comes to political clout, BPCL is no match to IOC. Location-wise, IOC is the closest to the centre of power. IOC management does not identify with political parties but only with the government in power. This flexibility has enabled IOC to be in the good books of the successive governments. BPCL and HPCL, on the other hand, have always been very wary of hobnobbing with the powers that be in Delhi. This disdain towards the bureaucracy probably stems from the cultures that were spawned in these organisations which still lay great store by their foreign ancestry, tracing their history to giants like Shell, Esso and Caltex. They have been less aggressive in lobbying for strategies to increase their fiefdoms, quite unlike IOC and ONGC.

IOC appears to have been preparing for this well in advance. Its aggressive foray into the area of LNG terminals by acquiring stakes in two of the proposed Adani-promoted terminals was aimed at becoming the country’s largest gas player. IOC’s 5 million tonne per annum LNG terminal on the east coast at Ennore near Chennai is expected to be commissioned in the near future. IOC already markets PLL’s imported LNG and imports a few cargoes of LNG on its own. It owns the largest petroleum pipeline network. It is already the country’s largest crude refiner and petroleum products marketer. The proposed 60 million tonne refinery on the West Coast, in which it will have a 50 per cent stake, will elevate it to a different level where it will even dwarf ONGC whose crude production tends to stagnate in the absence of commercial discoveries.

IOC’s present leadership is quite aggressive. Its chairman and managing director (CMD) Sanjeev Singh does not lack political clout. IOC had invariably displayed a preference for marketing people when it comes to picking its chief executive from within. The popular myth is that IOC needs to be led by a marketing expert as it is basically a marketing company. But there is a truth that is lost here: marketing of petroleum products in an energy-starved country like India does not require much skill. Sanjeev Singh used to head IOC’s refinery division – and was responsible for spearheading the creation of the corporation’s two biggest greenfield refineries in Panipat and Paradip. It’s been rare for the refinery division to throw up a chief executive. But Singh is a fierce fighter and, on present reckoning, he should be able to tilt the outcome of the battle for GAIL in IOC favour.