by R. Sasankan

This Column is the only one in the country that has relentlessly exposed the shenanigans within Petronet LNG Ltd (PLL) by focussing our radar on the people in positions of influence and their devious machinations.

We usually preface every exposé with a brief recapitulation of all the stuff we have written before so that new readers get the total picture.

PLL was born in sin -- and was nurtured in sin. The company was conceived by Dr Vijay Kelkar, then secretary in the ministry of petroleum and natural gas, as a private company with a public sector stake of 50 per cent. He had a noble reason for opting for such a structure: PLL would be nimble and match strides with private players with decision-making smooth and transparent, with no one living in fear that enforcement agencies like the Central Bureau of Investigation (CBI) and the Vigilance Commission would question their intent at any time. And that is precisely how the basic flaw was introduced in the working of PLL and exploited to the hilt by unscrupulous people.

Kelkar’s mistake was that he seemed to have forgotten for a moment the fact that the company he conceived would operate in India and not in Singapore or the United States of America where levels of corporate governance and transparency are much higher with a very effective regulatory system to boot. India, unfortunately, has a situation where even the regulators are corrupt.

Just how wilful and opaque the corporate governance system at PLL could be was evident at the start when the search committee assigned to pick incumbents for the top positions started to work. The committee was asked at the eleventh hour to select a particular person as the boss of PLL who had neither applied for the job nor had been interviewed by the government -appointed consultant. The search committee consisted of CMDs of oil and gas PSUs. But under the Indian system, no CMD dares question the petroleum secretary as the latter writes his annual confidential report (ACR).The order to select Suresh Mathur of Indian Oil Corporation as the first boss of PLL was given over the phone by Prabir Sengupta, who had succeeded Kelkar as secretary in the petroleum ministry.

PLL has another dubious distinction. This is the only company that has been able to demonstrate that quite a few Government of India’s secretaries can be more resourceful in the art of corruption than senior company executives.

A couple of petroleum secretaries were responsible for the reckless violations of the contract that PLL had signed with RasGas of Qatar for the import of 7.5 million tons per annum of LNG. It was either their connivance or stupid incompetence that created a situation where the price of LNG spurted from $ 4.2/mmbtu to $ 13/mmbtu. Had the PLL management stuck to the original RasGas offer, which was in response to its tender specifications, the price of LNG would have remained at $ 4.2/mmbtu. But that was not to be as the PLL leadership had no idea about the LNG business and fell for a deceptively packaged crude-linked pricing formula that RasGas had proposed.

Another unique feature of PLL is that it is the only private company to be headed by a Government of India secretary. In the original scheme of things, the petroleum secretary was to play no direct role in PLL. The designation of the chief executive of PLL was Chairman and Managing Director (CMD). Accordingly, Suresh Mathur was appointed as CMD of PLL. Soon after, the manipulations began. His post was lowered to MD and CEO and petroleum secretary came in as the ex-officio chairman. The cynics say that this was because the LNG industry is always awash in cash.

This corporate governance structure turned out to be an excellent mutually beneficial arrangement where the CEO got full protection from the secretary for whatever he did. Equally, he did nothing without the approval of the secretary who was the ex-officio chairman. The representatives of the four oil and gas PSUs, which together promoted the company with a combined 50 per cent stake, would rarely speak out in the presence of the secretary at the board meetings. The only exception was when U.D. Choubey, the then CMD of GAIL, attempted to speak, only to be snubbed by then ex-officio chairman M.S. Srinivasan.

It would be wrong to suggest that all petroleum secretaries behaved like ogres. Most of them shied away from open interference in the operations. But a couple of them recklessly interfered in PLL’s affairs. We had reported in this column how former petroleum secretary Saurabh Chandra tried to foist a friend from BHEL as the successor to A.K. Balyan in PLL. To ensure that his scheme did not encounter any resistance, he made D.K. Sarraf as the head of the search committee with one independent director of PLL as the other member. This arrangement completely ignored the interests of the promoter companies and other stakeholders such as Gaz de France which had representation on the search committee in the past.

Sarraf was not known to be an Yes man but he was picked because his confirmation as CMD of ONGC, a mandatory procedure on completion of one year in office, was pending before the secretary. The calculation was that Sarraf would be most vulnerable at that point of time and would definitely cave in. However, fate intervened. The petroleum minister was alerted about the manipulation and the board itself finally summoned up courage to revolt against wishes of Chandra, the ex-officio chairman.

This incident, again reported exclusively by this magazine, made us examine in detail the role that Chandra played in PLL. Our investigation reveals that he really played havoc with the operations of the company. As ex-officio chairman, his role was restricted to providing guidance at the policy level and not to interfere in the operations of the company. It now turns out that Chandra had a weakness for contracts. We are not attributing motives in the absence of documentary evidence but simply recording the sequence of developments. The way Chandra operated in certain cases looked quite unbecoming for a person of his stature and we are reporting this as it is in public interest.

Chandra blatantly interfered with a contract for providing services for port operations at PLL’s Dahej terminal. The existing contract was expiring and a new contractor had to be selected. PLL has a system of Executive Purchase Committee (EPC) that vets bids in detail and submits its recommendations to the board. The EPC works as a sub-committee of the board and consists of eminent people drawn from promoter companies. It is chaired by B.C. Tripathi, CMD of GAIL, and has among its members D.K. Sarraf, CMD of ONGC, who is known for his integrity, an independent member of the PLL Board, and director (finance) of PLL. The EPC recommended Tag Offshore Ltd as LI and Ocean Sparkle as L2. The EPC recorded that in all aspects, Tag Offshore emerged the LI and recommended to the Board that the “approval be granted to award the contract for the Port Operations Services to LI bidder on its US dollar quote”.

Chandra decided to act tough as if he had suddenly become the executive chairman of the company. He asked several questions during a presentation that the EPC made. He asked EPC to interact with him, which it did five times in his office in Shastri Bhavan. But Chandra remained unconvinced and, in the process, the contract award was delayed and the contract date had to be extended. Finally, Chandra got the Board to decide on a re-tender. But the question remained: how would the minutes of the meetings be recorded? Chandra himself offered to write the minutes, which is perhaps the first time that a head honcho has made such an overture at any company.

Almost simultaneously, PLL had floated a tender for a wind energy project. PLL requires a lot of power to heat its LNG to regasify it. To reduce the cost of power, PLL decided to establish a wind energy project. The EPC felt that the project made eminent economic sense. But Chandra did not agree. Tripathi was furious but could not say anything openly as he could not take on the petroleum secretary. Chandra thus derailed one more PLL project.

PLL has amply demonstrated why the CBI and the Vigilance Commission are so important institutions within the Indian system to exercise some oversight over erring ministers and bureaucrats. These enforcement agencies may not have been effective in reining in corruption. When they are deliberately kept at bay – as in the case of PLL –people at the top run amuck. Dr Kelkar may want to make a note of this point when he writes his autobiography.