ONGC ready with revamp blueprint
Bears trapped in Reliance
Threat of competition makes GIC innovative
Crash roils mutuals

 
 
ONGC READY WITH REVAMP BLUEPRINT 
 
 
FROM R. SASANKAN
 
New Delhi, April 23: 
The Oil and Natural Gas Corporation (ONGC) has finalised a restructuring blueprint along the lines recommended by international consultant McKinsey despite strong resistance from a section of the management.

The petroleum and natural gas secretary, S. Narayanan, has called a meeting of senior executives of the company, its consultants and ministry officials tomorrow in what will be the final round of discussions on the organisational recast. Later, the proposal will be sent to petroleum minister Ram Naik.

The restructured ONGC will look, more or less, the same as it did 17 years ago, when its operations were divided into two parts — onshore and offshore — and all activities such as exploration, production, and drilling were under the charge of only one person at the board level.

Under this arrangement, members — in those days ONGC only had members, not directors, such as member (offshore) and member (onshore) — enjoyed more powers than the chief executive.

In 1982-83, ONGC switched over to a wobbly functional set-up in which no director was directly responsible for the main business of finding and producing oil. The activities that contribute to the company’s core business were split into four segments.

Of late, it has become fashionable to blame the director (operations) for the shortfall in production without realising the fact that oil production is an integrated operation.

For instance, if the well completion — something the drilling division must account for — is faulty, the well will not produce the expected levels of output.

Further, the production target is linked to accretion of fresh reserves, either through upgradation or through new discoveries. This is the duty of director (exploration). The target also depends on timely installation of platforms and related production facilities.

International exploration and production companies are usually organised along an asset-base or a functional system. In the asset base system, a person is in charge of an area, and all divisions that fall under it. For instance, he is responsible for finding oil, getting the wells drilled and producing oil and gas.

Some companies are organised along functional lines such as exploration, production and drilling.

The exploration division focuses only on finding new oil, the production unit is responsible for all activities required to produce oil and a separate wing supervises drilling operations.

The existing ONGC structure does not fit into either of the two systems adopted by exploration and production companies the world over. The company has a functional set up, but it has remained largely cosmetic.

However, the most important business of oil production is split and placed under the charge of two officials — director (exploration) and partly director (operations). In specific terms of the hierarchy, reservoir engineering reports to director (exploration) and surface operations, along with a part of well operations, report to the director (operations).

McKinsey has described ONGC’s current apparatus as an ‘unconventional structure’. Under the setup proposed in the restructuring plan, there will be one director each in charge of offshore and onshore.

Further, the director (finance) will not be in charge of cost-control measures while director (personnel) will be concerned only with policy matters.    


 
 
BEARS TRAPPED IN RELIANCE 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, April 23: 
Bears are likely to be trapped at the Reliance counter in the coming week as the scrip comes out of the ‘no delivery segment.’

The net short position at the Reliance counter on the Bombay Stock Exchange (BSE) is around 29.46 lakh shares. Broking circles say a shortage of this magnitude has occurred after five to six years.

The bears, who cashed in on the no-delivery period to short sell the scrip, will now have to rustle up the shares to make their deliveries. The shortage means they will have to pay a higher price. It also signals a continued spurt in the scrip’s value.

The share has consistently hit the upper bands after its results were announced, following significant buying in the Reliance counter. Marketmen say leading US-based FIIs were active in the counter, mopping up huge volumes.

The short-sellers were apparently caught on the wrong foot because of the massive purchases by leading US-based FIIs who were believed to have picked up deliveries of over 3 crore RIL shares in the past month, aggregating over Rs 1000 crore in value, leading to the net position in the market. Already, the determination of the Reliance management to teach speculators a lesson, is well known in the market.

The magnitude of the short selling can be gauged by the fact that in February 2000, in the weeks before the presentation of the Union budget, the net long position was in the range of 50 lakh shares.

Incidentally, adding to the woes of the short sellers is the fact that the Reliance stock will be out of the ‘no delivery’ period on various exchanges this week. NSE will be the first exchange where the Reliance counter will come out of the ‘no delivery’ period. It will be traded normally from April 25. The Calcutta and Bombay stock exchanges will put the scrip out of the ‘no delivery’ segment from April 27 and April 28 respectively.

Broking circles opine that the end of the ‘no delivery’ phase would mean that the short sellers will have to buy Reliance shares to square off their positions or pay backwardation charges.

It may be recalled that soon after the Reliance management pegged the buyback price at Rs 303, a section of the market was upset at the low rate fixed for the issue. The Reliance share bucked the recent slump on bourses, gaining 45 per cent since the beginning of this year .    


 
 
THREAT OF COMPETITION MAKES GIC INNOVATIVE 
 
 
BY RENU M R KAKKAR
 
Calcutta, April 23: 
General Insurance Corporation (GIC) has introduced an innovative personal insurance cover which gives back to the investor a portion of the premium. The new scheme is part of its efforts to face competition once the sector is opened up to private players.

The new policy, named the Return-linked Insurance Scheme, will replace the current personal accident schemes.

It is also likely to be suitably incorporated in medical insurance schemes run by the four GIC subsidiaries — Oriental Insurance, National Insurance, New India Assurance and United India Insurance Corporation.

Under the new policy, a customer who takes a long-term insurance cover of Rs 3 lakh for five years and pays Rs 50,000 as insurance premium, will get back a fixed percentage of the premium, if he does not have any claims in that timeframe.

Under the current system, if the insurance amount is not claimed in the five-year period covered under the policy, the entire premium amount is forfeited and the customer receives nothing.

Top GIC officials said that the fresh initiative follows a market study which revealed that the public perception when buying a personal accident and medical insurance policy, was one of being cheated. A majority of the respondents were critical of the fact that while GIC took the premium to provide the cover, it was kept back as a full profit if not claimed.

With the multinational insurance majors now knocking on their doors, GIC is keen to change that perception.

However, the rate of the return is yet to be decided. Sources said that details are being worked out and it will be officially launched in July, when the company plans to launch its new medical insurance policy, the US style HMO (Health Maintenance Organisation).

By including the two general insurance segments in the return-linked insurance scheme, GIC is trying to shield its business from future competition.

GIC had thus far held the view that the premium is the cost of covering the risk for the period as it would have had to pay the entire insurance cover if the customer actually did meet with an accident.

Most other insurance policies already have inbuilt discounts and bonuses. For instance, if a Mediclaim policy is not claimed for five years then 5 per cent is added to the indemnity amount as a bonus.

Similarly, in motor insurance covers, which is renewed on a yearly basis, a no-claim within the year gets translated into a discount on the next year’s premium.

For life insurance policy covers too, LIC offers year-end bonuses to counter the accusation that the life insurance premium it charges is amongst the highest in the world.    


 
 
CRASH ROILS MUTUALS 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, April 23: 
The net asset values (NAVs) of leading mutual fund schemes have declined by a steep 25-30 per cent due to the recent slump on stock exchanges in which technology scrips were savaged. The crash in share prices of ICE stocks has triggered a redemption rush in schemes that have a high exposure to these firms. The decline in the NAVs of open-ended schemes range from 26 per cent and 56 per cent between March 30 and April 19.

The decline in net asset values could not have been timed worse. The industry came out of the grip of a long recession only last year, notching up record collections in 1999-2000. Analysts say the current month may even see mutual funds posting negative collections.

The plunge, caused largely due to the sharp fall in technology stocks, has lead to a lack of confidence among investors in schemes that invest in them. More important, the meltdown has cast doubts over the logic and viability of sectoral funds dedicated to the technology sector.    

 

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