Govt to replace 4 independent directors in IndianOil
New Delhi   11-May-2008
In a rare move, the Union government has decided to replace four independent directors of IndianOil at one go. According to sources close to the development, four fresh names have been sent by the petroleum ministry to the Prime Minister office (PMO) for its approval. The independent directors who are on their way out are P M Sinha, former Pepsico India Holdings chairman, V K Aggarwal, former Railway Board chairman, V Ranganathan, former Maharashtra chief secretary, and Samir Barua, IIM-A director. All these directors were also heading important committees in the PSU. Another independent director, Vineet Nayar, CEO & MD, Tech Mahindra, had completed his tenure recently and sources say he is not being considered for an extension. Sources close to these independent directors say the reason for the government’s eagerness to replace all of them in one go is that they were vociferous on the government’s inability to increase retail prices of petroleum products. All of them felt this was affecting the bottom line of IndianOil severely. According to estimates, IndianOil’s losses from selling fuel below the cost may go up to Rs 18,0000 cr in 2007-08 as compared to Rs 77,000 cr last fiscal. IndianOil’s gross refinery margin for the April-December period in 2007-08 stood at $9.10 a barrel as against $3.64 a barrel in the corresponding period in the previous fiscal. Says an out-going independent director on the condition of anonymity:”We have been protesting against the erosion of value of our crown jewel. We have made known our reservation against the government’s decision of not hiking prices of petroleum products. In fact, an independent director can be sued in a private company if he is not able to protect the interest of shareholders.” When contacted by Sunday ET, here’s what an IndianOil official said: “Terms of all independent directors had ended two years ago and they were in the board on extension. Now they are likely to be replaced by a new set of independent directors. It is understood that the government has recommended names of new independent directors.” During the last three months, crude prices in the global market have risen by more than 30%. But India’s domestic oil marketing companies could not raise prices due to government regulations in the sector. The government considering its impact on retail prices now fixes prices of key petroleum products such as diesel, petrol, LPG and kerosene. The government is reluctant to allow the prices of these products to be raised as it may result in pushing inflation numbers higher. However, oil companies have stepped up pressure on the government for petroleum product price revision considering soaring crude prices in the global market. Globally, crude price has reached $124.73 a barrel in New York. According to industry sources, the losses incurred to Indian oil marketing companies for the financial year 2007-08 would come around Rs 80,000 cr, if prices prevail at this rate. The rise in crude prices has badly impacted the profitability of three oil companies such as IndianOil, Bharat Petroleum Corporation and Hindustan Petroleum Corporation. With the 2008 General Elections around the corner, the ruling UPA is not in a position to increase product prices. Since the prices of petrol, diesel and LPG are controlled, the oil companies could see a total under recovery of Rs 1,20,000 crore in FY 2009.