RIL is wrong: it is PSUs who need a level playing field

Every now and then, Reliance Industries Ltd (RIL) will talk of seeking a level playing field for itself in petroleum products retailing. Tony Fountain, CEO of Reliance’s refining and marketing operations, said yesterday that the company was keeping most of its petrol pumps shut due to the government’s subsidisation of diesel, which makes Reliance’s own pumps unviable in India.

Fountain is quoted by The Times of India thus: “We are not selling diesel anywhere… Only a few outlets are operating (for petrol sales)..”. He said Reliance was “ready to reopen (petrol pumps) if the fiscal environment is right” - which means the government should either deregulate diesel pricing or offer Reliance a fiscal subsidy, like it does to the public sector oil marketing companies (OMCs).

[caption id=“attachment_492237” align=“alignleft” width=“380”] Reliance is lucky that it does not have to sell diesel and other products at subsidised prices while the OMCs are forced to do so[/caption]

Fountain is right on his demand for the deregulation of diesel pricing, without which the government’s subsidies will go through the roof. Even the PM has realised after eight years in government that “money does not grow on trees.”

But Reliance is wrong on the issue of a level playing field. The truth is, despite the subsidy on diesel, the field is tilted against the public sector OMCs - Indian Oil, Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL). It is not particularly tilted against Reliance, if at all.

Reliance is lucky that it does not have to sell diesel and other products at subsidised prices while the OMCs are forced to do so. They have to beg and plead for subsidies, and the public sector oil and gas producers (ONGC, Gail and Oil India) are peremptorily ordered to transfer their profits to the OMCs.

Reliance should be glad it is neither in the unenviable position of the OMCs or the oil and gas producers. It is free to export its petro-products to any part of the world where there is a profit to be made, and it does not have to wait for handouts from the government. As an oil and gas producer, it does not have to share the subsidy burden with the OMCs - like an ONGC does.

Even in the case of gas, where Reliance is stuck with a fixed price of $4.2 per mmbtu up to 2014, it has freedom of manoeuvre. It has chosen to cut output on the plea that it faces difficult technical problems. The petroleum minister does not believe Reliance’s claims, but he has little scope for intervention since the field belongs to Reliance and BP.

Due to public ownership, no OMC has been able to shut down its refinery or cut the output of unprofitable products - something which Reliance can do quite easily.

This is not to say that the government is following sensible policies - it is not, for the right answer is to free pricing and subsidise only the deserving consumers directly from the budget - but the point is there is no lack of a level field for private players like Reliance.

There was a time in the early 1990s, when the public sector wielded enormous clout with the government and could stymie private sector plans or projects.

But the boot is now on the other foot.

The complete ruin of Air India is a tribute not to the superiority of private sector competitors, but the systematic destruction of managerial competence within Air India by ministers and bureaucrats who have used the airline for private purposes and failed to give it the right kind of autonomy and leadership for a turnaround.

Private competitors have, by feeding the right bureaucrats and ministers, managed to cripple the autonomy of public sector telecom companies such as Bharat Sanchar Nigam Ltd (BSNL) and MTNL, which are now basket cases.

In early 2010, two unions of BSNL - the Sanchar Nigam Executives Association (SNEA) and the All-India Graduate Engineer Telecom Officers Association - wrote a letter to the Prime Minister seeking a management change since the leadership was simply incapable of rescuing the company.

They wrote: “This company cannot survive under such servile management, which, we are sure, cannot rise above the interests of the lords (ministers and babus). Thus, the issue fundamentally boils down to the induction of the rarest of rare talent on the board, definitely not through the orthodox and primitive mechanism that that Public Enterprises Selection Board has in place at the moment.”

Even the unions have managed to call a spade a spade - the public sector cannot be run by servile managers whose interests are aligned with netas and babus, rather than with the institution they run.

But the PM did nothing. He left BSNL to the mercies of A Raja.

The public sector has earned a bad name today because it has been shackled to vested interests. Give it autonomy and better managers, and even the public sector can rise. Mukesh Ambani should know this, for many of his own top managers are former public sector CEOs.

The issue is not a level playing field for Reliance, but for the public sector.