The prime minister is supposed to meet the chief executives of public sector undertakings (PSUs) later today. The reason, as a government press release says, is to allow the CEOs “to convey their views to the Prime Minister on several key issues like autonomy and empowerment, including flexibility to their boards”. Their investment plans will also be discussed.
One wonders if Manmohan Singh does not know any of this. He, more than anyone else, should be aware that political interference has consistently degraded the capabilities of the public sector during UPA-1 and UPA-2 – from the energy sector to aviation to telecoms. As for discussing their investment plans, one wonders how a PM is supposed to get into such minutiae; in any case, since autonomy is on the agenda, shouldn’t their investment plans be left to their respective boards?
This meet-the-PM initiative is supposed to have been the brainchild of Minister of Heavy Industry, Praful Patel, who as civil aviation minister presided over Air India’s decline into disaster. But we shall let that pass, and assume that the PM needs to know what the public sector chiefs have on their wishlist.
Since it is unlikely that the CEOs, concerned for their jobs, will be too open about what they think is wrong with way the government is running PSUs, Firstpost will do the job for them. So here goes an open letter to the PM from public sector chief executives.
Dear Shri Manmohan Singhji,
We are extremely pleased to hear that Praful Patelji has organised a meeting with you to hear about the problems we face while running our businesses. We are collectively sending this letter to you in advance in strictest confidence, since we may not be able to speak openly on these subjects when we meet you, especially with the minister in attendance.
We are sure you know the issues confronting us, but no government has ever bothered to reform the area of public sector governance because of “political compulsions”. We write this letter in the hope that your government will be able to transcend these political compulsions, since the public sector is financed from taxpayer funds. They should be valuable national assets, and not liabilities, which many of us have sadly become.
Our group of public sector CEOs includes very profitable companies like ONGC, Gail, Sail, NTPC and Coal India, and also many that lose heavily, including Bharat Sanchar Nigam Ltd and Air India. While our specific problems are different, our core concerns remain the same: political interference in our working, and the inability of our administrative ministries to treat us like professional organisations that have to deliver bang for the taxpayers’ buck.
We also need to bring to your notice that the Hon’ble Finance Minister, Shri P Chidambaram, has been saying that PSUs must use their cash or lose it (i.e. return the money to government as dividends or through buybacks). While his motives may be honourable, as operating companies these are our decisions. They finance minister cannot decide this on our behalf. If an Infosys can decide what to do with its cash, we do not see why we need a finance minister to tell us what to do. The government, as owner, can, of course, ask us to pay huge dividends, but it cannot in the same breath also ask us to invest and focus on our corporate and social goals.
That said, we would like to come to the nub of the issues bothering us.
Shri Patel has informed the media yesterday that “autonomy of PSUs and disinvestment will be discussed”, but we need to discuss these issues beyond mere generalities.
What, for example, do we mean by autonomy? For us, whether it is Air India or ONGC, it is about being left free to pursue the objectives set by the government as owner.
We can illustrate this with an example. If the goal given to ONGC is that it must double indigenous oil production in three years, or five, this should be part of the long-term understanding the government should sign with the company. Once this is done, the minister should not be concerned with how we achieve this, as long as the means are legal. It also means that ONGC’s cash cannot be considered public property, to be used by the finance minister as he pleases, unless that too is part of the agreement. We can always decide that 30-35 percent of pre-tax profits will be distributed as dividends. This cannot be decided arbitrarily based on the fiscal deficit of any particular year.
In this context, it would be a good idea to insulate all PSUs through an investment board, headed by public-spirited persons with an impeccable track record, where all public sector stakes are housed. The purpose of this board (or boards) should be to monitor the delivery of what is agreed between the PSU and the government. And to maximise shareholder and social value for the government.
The administrative ministry should be delinked from PSUs, and the only link between a PSU and the government should be the annual performance review, and the monitoring of the medium term objectives set by the government, with the investment board playing intermediary.
Decisions on what to invest, where to invest, how to price our products, and who to recruit or sack should not the job of ministers and bureaucrats. The corporate board can do it. It is only when this job is done by ministries that we end up facing lawsuits from minority shareholders, as we did recently from The Children’s Investment Fund in the case of Coal India.
If you can guarantee us this autonomy, we can guarantee results. We may occasionally fail, but this is something normal.
Annually, and over the medium term, we could agree on specific financial or social objectives, profitability, and cost targets for us to achieve. Achieving these goals is our job and we should be held accountable for the same. Beyond that, it should be hands-off by the government.
This brings us to disinvestment. We know the government needs money, and we are happy to allow it to disinvest any time it wants to. However, disinvestment does nothing for us – the money we need to raise for our own investment is lost when the markets are swamped with disinvested shares. We need a judicious mix of disinvestment and further share offers, where the money raised from the latter can be used to grow the business and improve shareholder value, which includes the government. It is investment that raises share value, and not mindless disinvestment.
We would thus like to make it clear that disinvestment is not always the best way to raise money – or even improve shareholder value. A lot of public sector shares are undervalued because government meddling in our decision-making lowers our market value. This is why ONGC, despite being the country’s largest oil producer, get a price-earnings multiple of around eight, while Reliance gets 14. The difference is largely the result of the investor perception that government can meddle with the oil sector, but not with a private player like Reliance, which has its own power of agency to do what is right for its shareholders.
We, thus, need a greater say in how disinvestment takes place. It should not be about selling the household silver. Investing in the public sector will, in fact, deliver better value that disinvesting over the long term.
A third issue we want to raise is a level-playing field. I know this is a phrase your private sector chiefs like to use, but if anyone needs a level playing field, it is us.
We would like to be frank here. Given our corrupt corporate culture, it is always possible for private sector competitors to bribe bureaucrats and ministers to delay our plans, or put our CEOs under vigilance probes, or force us to keep retendering for equipment that we badly need. A simple question in Parliament can delay our plans indefinitely.
We cannot run our businesses like this. We can illustrate this issue with a few examples.
Air India cannot decide what aircraft to buy without the minister intervening. You know what went wrong with the last Boeing purchase order, which ruined the airline’s balance-sheet. It was one of the reasons why it needed a Rs 30,000 crore bailout.
Our public sector telecom companies—BSNL and MTNL—were forced to buy costly 3G spectrum at the highest bid prices, which nearly ruined them. The government has since allowed them partial refunds, but shouldn’t they have been allowed to decide what is best for them themselves?
Our oil companies are forced to subsidise diesel, cooking gas and kerosene, and then wait endlessly for the subsidies to reach them. Even profit-making ONGC is forced to subsidise them. How can ONGC do its job of producing more oil and reducing the country’s import dependence if its profits are used to subsidise consumers of the oil marketing companies? Goldman Sachs has referred to this practice as a lack of corporate governance.
The last issue we would like to raise is something we ourselves are ashamed of. Many of us are ex-bureaucrats, but we believe that public sector companies should be run by professional managers, including experienced ones from the private sector. If the private sector can use retired public sector executives, we don’t see why the reverse cannot be done. We are not saying some IAS officers may not make very good CEOs, but companies need leaders, not just administrators.
Bringing in fresh ideas and leaders from outside will make for a refreshing change.
We can go on and on. But these three or four issues are enough for today. What we are saying is this: we (the public sector) can compete, and we will, if we are only allowed to.
If you can, please remove our shackles.
25 PSU Chief Executives.