The petroleum ministry announced that public sector units in the oil sector –like Gail, HPCL, ONGC, BPCL and IndianOil- have resolved to spend at least 2% of their net profits on corporate social responsibility projects. There was a joint meeting of the Minister for Petroleum & Natural Gas, Murli Deora, chairmen of oil PSUs and the petroleum secretary, RS Pandey.
The meeting was to review the contribution made by the oil PSUs to corporate social responsibility projects. The chairmen made presentations on their CSR activities. The minister felt that CSR activities should be carried out in a more focused manner such that they create a real impact. The fallout of this meeting will not please public shareholders of these PSUs.
These companies have resolved to set aside 2% of their net profits for CSR projects. While the impact on profits could vary –depending on whether these are P&L expenses or capital expenditure- there will be a cash outflow. Two per cent may seem small but not when one considers the quantum of profits these companies make, in normal years.
In FY08, ONGC’s net profit was Rs 16,702 crore, if this rule had been in place this year, it would have spent Rs 334 crore alone by itself. The ministry has said it expects about Rs 600 a crore to be spent by oil sector PSUs. Maybe this figure was computed by taking the contribution as a percentage of the total profits expected of all PSU companies in the current year. Since the refiners have incurred a loss, the overall net profit of the PSU oil sector will be lower this year.
IOC, for example, may have to spend Rs 140 crore based on its FY08 profit but in FY09 it will close the year with a loss. If the companies incur losses they may not get much relief, as companies are required to spend as much as they did in the previous year, in any case. In recent years, spiralling crude prices coupled with inability to pass on cost hikes due to government diktats has weakened oil companies’ financial performance.
The government’s intentions of promoting CSR are good but this is not the right way of doing it. Each company should decide what it can do best and the quantum of expenditure is not as important as results. The government would perhaps do industry a favour by clarifying what CSR is; that it goes beyond charity, it is a way of functioning where a company assesses its impact on society and attempts to be a good corporate citizen. For example, a factory may provide drinking water to villages in the vicinity. But it must also ensure its effluent discharge conforms to pollution norms, and voluntarily treats the discharge further to prevent groundwater contamination.