After making him wait for 14 months, the petroleum minister finally made R.S. Sharma chairman and managing director of Oil and Natural Gas Corporation. The long wait did not reflect too favourably on Murli Deora’s speed of decision, and he gave the impression that Mr Sharma was not his first choice. That is a pity, for ONGC is the Indian government’s crown jewel — the country’s largest corporation and largest taxpayer. After paying Rs 8,000 crore in taxes in 2006-07, it made a profit of Rs 15,000 crore, and would have made another Rs 21,000 crore if the government had not forced it to subsidize kerosene and liquefied petroleum gas.

The corporation suffers from an embarras de richesse; its overflowing coffers attract raids by the government. The government should give subsidies out of its budget. It is wrong to burden its companies with subsidy, and unfair to their private shareholders. And in ONGC’s case, it distorts incentives. Mr Sharma would be acting rationally if he concentrated resources in ONGC’s affiliates abroad and went slow on domestic production. Such a tendency could be read into the way ONGC has dragged its feet on Barmer, where Cairn’s discovery is too small to justify an independent refinery. This crude will have to be evacuated by ONGC, but it is in no hurry. The bias against home could also be read into ONGC’s slowness in the rejuvenation of Bombay High. Unfortunately, ONGC cannot escape the government’s clutches by going abroad, for all operations abroad are subject to the country’s foreign policy. The corporation has to compete with CNOOC for concessions abroad; governments are inevitably involved in this race. Not that the Indian government is much of an asset in winning concessions. Now CNOOC has 16 concessions in 9 countries; ONGC participated in 9 in 7 countries. But in terms of potential, CNOOC’s concessions in Indonesia, Australia and Nigeria were far ahead of anything won by ONGC.

Given the lack of promise in oil exploration abroad and government disincentives in oil and gas production at home, ONGC has been tempted to go into downstream activities. Its first foray was the acquisition of the Mangalore refinery from the Birlas. But it has not got much further. The government thinks of ONGC as an exploration and crude production company, and successive CMDs of ONGC have not been able to change this. It was one of the issues on which Subir Raha got into trouble with Mani Shankar Aiyar; Mr Sharma is unlikely to be any more successful with Mr Deora. But if the government were rational, it would know that companies must diversify in the most profitable directions. By confining ONGC to upstream oil, the government is wasting its potential and reducing the return on its own investment.