B P Rao's Extension Good For BHEL But Could Set A Tricky Precedent: Experts

In a historic move, the PMO has granted a two-year extension to B P Rao, CMD, BHEL after his superannuation. Rao, who was to retire on December 31, 2013, was given a formal extension hours before his final day on Tuesday, following a marathon informal meeting of the PM’s Principal Secretary Pulok Chatterjee, Cabinet Secretary Ajit Kumar Seth and Sutanu Behuria, Secretary – Heavy Industries.

This decision comes at the fag end of the UPA II government, which has decided to break with tradition by giving Rao a “strategically important” extension. This is for the first time that a CMD of a PSU has been given extension after retirement. The decision is sure to serve as a landmark and will have repercussions on other PSUs in the time to come, especially on ONGC and IOC, whose CMDs are due to retire in the next few months.

By giving Rao an extension, the Ministry of Heavy Industries and Public Sector Enterprises (MHI&PSE) has taken a bold step forward in the direction of PSU reforms as suggested by the Roongta Committee regarding giving a fixed 3 years tenure of service to CMDs and a 2-year extension to outstanding CMDs. It has also brought respite to Maharatnas under its umbrella, which is going through a strategic expansion phase and global downturn in the Capital Goods segment.

BHEL is presently on the road to diversification into railways, EPC, solar energy and other activities. Rao is considered as the best brain to steer the turbine major through these challenging times, when power sector is going through testing time and BHEL is striving to achieve its target of becoming a Rs 1 lakh crore company by 2017. In this regard, Rao said to DSIJ, “My focus would certainly be on making BHEL a global player in the Capital Goods category and give my 100% in making BHEL a diversified machinery major”.

Rao’s extension is also important from the perspective that the CMD designate Prakash Chand is currently an Executive Director in the company and lacks board level experience. Chand’s name was cleared by the PESB on the suggestion of the MHI&PSE a few months ago, on the grounds that an extension could be given to Rao and Chand could be trained by him before he takes charge.

Though experts and bureaucrats are positive about Rao’s extension, they are equally sceptical about the future impact. Till now politicians and ministers only interfered in the selection and postings of directors and CMDs. With this precedent, they may also use their power to give extension to CMDs even after retirement based on a variety of reasons , an official of the Department of Public Enterprises opines.

These fears are already ringing true. Veerappa Moily, Minister for Petroleum and Natural Gas, has written to the Prime Minister for the extension of ONGC CMD Sudhir Vasudeva, who is due for retirement in February 2014, citing the strategic plans underway in the company as a reason to hold Vasudeva back. R S Butola, CMD, IOC is also scheduled to retire in May 2014, and B Ashok, the CMD designate for the company, is also an ED (similar to the BHEL case). The example of BHEL makes a clear case for giving both Vasudeva and Butola an extension too. “After this move, line ministries and the government would have more interference in the companies. The CMDs would be tempted to get an extension by bowing before all the demands of ministries”, the official comments.