New Delhi: The government is likely to appoint former RBI deputy governor Usha Thorat and former finance secretary Arun Ramanathan to the board of ONGC so as to pave the way for the share sale of the state-owned firm by July.
The oil ministry has short-listed Thorat, Ramanathan and Deepak Nayyar, ex-vice chancellor of Delhi University, for appointment as independent directors on the board of Oil and Natural Gas Corp, which currently does not meet market regulator Sebi’s listing requirement.
“The three names will sent to a Search Committee, which will screen the names before they are sent to the Cabinet Committee on Appointments for approval,” an official with direct knowledge of the development said.
“The whole process may take at least a month,” he said, adding ONGC will file papers for the follow-on public offer once its meets the Sebi requirement of having an equal number of executive and non-executive or independent directors on its board.
The government plans to sell 5%, or 427.77 million equity shares, through the FPO to raise up to Rs 12,000 crore. The FPO was to hit the market in March, but was deferred.
“The timing of FPO will depend on how aggressively the Department of Disinvestment (DoD) pushes for it. It may happen in June or July,” the official said.
ONGC does not meet Sebi’s listing norm of having an equal number of functional and independent directors and the government had previously planned to withdraw both its nominee directors on the board to push the FPO through.
But the move would have led to ONGC losing its coveted Navaratna status, which gives the company board autonomy to approve an investment of any size on its projects and powers to invest up to Rs 1,000 crore in a joint venture company.
According to the norms, a Navaratna board can exercise its limitless powers only when it has government-nominated directors on board. Upon withdrawal of such directors, ONGC will have to seek nod of the Public Investment Board (PIB) for any spending of over Rs 100 crore, the official said.
“The consequences of withdrawing government directors were too grave and so it has been decided to make regular appointment of independent directors and till such time, the FPO was deferred,” he said.
ONGC has six functional directors, besides the chairman. It also has two government-appointed nominee directors, taking the total strength of functional/promoter directors to nine. Against this, it currently has five independent directors and needs four more to meet the Sebi’s listing norm.
But since the company does not have a full-time chairman and director (human resources), appointment of three directors would help ONGC meet Sebi norm, the official said.
Sources said that last year, the oil ministry — under the then minister Murli Deora — had selected five persons, including a chartered accountant, an IIT-Mumbai professor and the CEO of a private sector lender for nomination to ONGC’s board.
But before the names could go to the ACC, S Jaipal Reddy replaced Deora. Reddy last month sent the name of IIT Professor D Chandrasekharam and and HDFC managing director Renu Sud Karnad to ACC for approval.
His logic was that since ONGC did not have a permanent chairman after the retirement of R S Sharma and the vacancies of Director (Human Resources) and Director (Exploration) were unfilled, the effective board strength was down to six and only two independent directors were needed to meet SEBI’s norms.
But before the ACC could approve, S V Rao was appointed Director (Exploration), taking the effective board strength to seven.
Also, it came to light that a serving executive in any company cannot be appointed as independent director on a PSU board, sources said, explaining the reasons for rejection of Karnad’s candidature.
The remaining three persons chosen by the Oil Ministry also failed to meet the guidelines and so it was decided to withdraw its two government directors to bring down the effective strength to five.
Post-FPO, the government’s stake in ONGC would come down to 69.14%from the current 74.14%.
The government is currently represented on ONGC’s board by Sudhir Bhargava,additional secretary in the oil ministry, and L M Vas from the Department of Economic Affairs in the finance ministry.
Vas has since become special secretary and as per tradition, only officials up to the rank of additional secretary are appointed on ONGC’s board, sources said, adding that she and Bhargava were to be withdrawn.
Instead, a nominee each from the oil and finance ministries was to be made permanent invitee on the board, which would not be enough to meet the requirement for exercising Navaratna powers, they said.
In fact, ONGC was conferred the higher Maharatna status and greater financial autonomy, but the state-owned firm could never exercise it as it did not meet the requirement of having an equal number of executive and non-executive directors on its board.
Besides giving powers to approved unlimited investment in its own projects, the Maharatna status allows PSUs to invest up to 15% of their net worth, or Rs 5,000 crore, whichever is higher, in joint venture companies.
ONGC in February received the report of independent auditors, who certified the company’s oil and gas reserves, a mandatory requirement for explorers making public offers.
Bank of America Corp, Nomura Holdings, HSBC Holdings Plc, JM Financial Services, Citigroup Inc and Morgan Stanley are managing the FPO.