Creating national champions: India’s key to energy security

India plans to sell 20 per cent of the state-run Power Grid Corp, the country’s largest electricity transmission company, in a public offer estimated to be worth $1.8bn. New Delhi aims to reduce the country’s huge fiscal deficit through selling stakes in a series of state owned companies such as Indian Oil, the Steel Authority of India and Coal India.

But the government is looking to kill two birds with one stone. While it seeks to raise $8.5bn in the current fiscal year it is also hoping to increase the pace of partial privatisation with the aim of creating national champions (such as the likes of GDF Suez in France and PetroChina in China) that have the means to expand and compete internationally. However, stake sales alone may not do the trick. Experts have said that for success in the long term a full governance overhaul needs to take place to reduce the bureaucracy and increase flexibility for these corporations.

While some have lauded the government’s intention towards partial privitisation, they have been very clear about the limitations that are still in place for these companies. 

“The creation of better-run, commercial, professional companies that are competitive, is the way forward,” said Deepak Lalwani, the director of India investments at Astaire & Partners, a London stockbroker. “They have kickstarted the process away from the overly bureaucratic state-run procedures that slow things down”.

Arvind Mahajan, Executive Director at KPMG specialising in energy and natural resources, said “currently these state-run enterprises are handicapped and they are not competitive on an international level and they face challenges when it comes to bidding for contracts for example. But even with this stake sale, they will not be able to compete on the same level as companies in the private sector, unless they are given the same freedoms and flexible governance structure as them. But this will take time.”

The ultimate aim is to create better managed, efficient corporations which can operate on a larger scale, so that India’s energy deficit can be bridged. Currently the country is heavily dependent on oil and gas with four fifths of the India’s crude oil being imported. India’s state-run Oil and Natural Gas Corp (ONGC) has already expressed its intention of joining hands with PetroVietnam, the largest oil producer and second-largest power producer in Vietnam, about acquiring BP assets in the country, as the country looks to secure more energy supplies for its fast-expanding economy

Calls for the reform of these state-run companies are ever-present, but they have not turned investors away from the country’s power sector, who are looking to enter the fast-growing market (India’s economy is expected to grow at 8.5 per cent this year).

While there is a long road of change ahead for India’s state-run corporations, let’s hope they don’t take too long, as the demand for energy from the country’s 1.2bn population is ever-increasing.