Listed Oil PSUs, Played as Petty Political Pawns?

Ranganathan V 01 September 2023

Investor Interest

On 30th August, when the government announced a Rs200 reduction in the price of cooking gas cylinders, it was expected that oil marketing companies would take a hit. Predictably, the market prices of public sector undertakings (PSUs) took some hit. Normally, a listed company impacted by such a headline-making development is expected to notify its implications to the stock exchanges.

After the close of the market hours on 30th August, the Union government clarified that the impact would be absorbed in the form of a subsidy to be paid to the oil marketing companies (OMCs). However, stock prices fell sharply on 31 August 2023. All the OMCs have remained silent about the blow.

The rules on disclosure of material events or information governing listed entities are clearly spelt out under Regulations 30 and 30A of the (Listing Obligations and Disclosure Requirements) (LODR) Regulations, 2015.

In fact, the Securities and Exchange Board of India (SEBI) expanded and tightened the regulations even further, effective 13 July 2023 and expanded the disclosures to cover almost all non-routine events and developments that may have even a remote impact on the share price of a listed entity.

The objective, it would seem, was to disseminate information in a timely manner and keep the public current with the same level of information that the operating management and the promoter shareholder(s) may have in their possession. Since that has not happened, it means that if the subsidy is likely to impact the profitability of oil marketing companies, only the management and their employees would be privy to this information and the investing public would remain in the dark until the next results are announced.

Would stock exchanges and the market regulator have remained just as sanguine about this non-disclosure if listed companies in the private sector had failed to make a disclosure?

It is a fact that PSUs tend to be non-compliant on some or many of the LODR mandates, which otherwise fall heavily on non-PSU listed entities. One of the well-known areas is the appointment of independent directors and women directors.

Even the comptroller and auditor general (CAG) reports have highlighted in the past the non-compliance. The explanation often tendered is that the concerned administrative ministry should be asked.

The phenomenon of PSUs listed in the market with limited accountability of the political class that ultimately runs the ministries under them is an inherent contradiction that has remained unaddressed over the years. No particular government is more blameworthy on this score.

While ad hoc decisions like the one that triggered this article may have a more short-term impact, the fundamental issue is the treatment of the PSUs as political pawns to achieve goals that are not fully aligned with commercial goals and that of the interest of the minority shareholders.

The annual report of Indian Oil Corp (IOC) for FY22-23 brings out the fact that the OMCs were made to give loans for the purchase of gas stoves under the Pradhan Mantri Ujjwala Yojana (PMUY) scheme and the initial hope of recovery of the loan progressively when additional cylinders are bought has been proved wrong with most households not ordering additional refills. Hence, the loans are considered ones with high ECL (expected credit loss) and are now being provided in the accounts.

Much of this information is either hidden from the public or buried in so much other data that ferreting out these is itself a challenge.

Similar are the decisions where a cash-rich PSU is made to buy out shares of another PSU in a disinvestment or a bailout situation.

Oil companies have been particularly vulnerable to political pressures. It generates high tax revenues and the pervasiveness of the product that permeates the entire economic fabric of the country, lending itself to convenient political play that distances the price of oil from its core component of the international crude prices!

(Ranganathan V is a CA and CS. He has over 43 years of experience in the corporate sector and in consultancy. For 17 years, he worked as Director and Partner in Ernst & Young LLP and three years as senior advisor post-retirement handling the task of building the Chennai and Hyderabad practice of E&Y in tax and regulatory space. Currently, he serves as an independent director on the board of four companies)

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