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Public sector organization of India

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1. Executive Summary:

Public sector is purely assets that remain in state that its ownership is purely and transparently public and it is process of outsourcing. The public sector comprises that organisation which provides service to the public and for which a charge may or may not be made and funded from public expenditure and which are subject at some level to political control. Public sector reorganising in India has been a big topic of debate for a number of years and it has come under scrutiny of expert committees for reason. Public sector undertakings are the major drivers of growth of Indian economy. Apart from financial benefits, these organizations have contributed a lot to the development of Indian society. For the analysis of management of the public sector, I have selected a leading public sector organization in oil and gas sector. This organization is a leading organization in the field of natural gas transportation and marketing in India. It also has a dominant presence in petrochemical business and one of the top three players in India. This report analysis deals with the current organizational structure of the organization, its strengths and weaknesses, global industry landscape, evaluation of industry in India, the critical issues faced by the management and management's strategy for the future. At last I am trying to explore the response of the top management regarding these critical issues and trying to draw my own conclusion and recommendation on the management of that public sector organization.


For the analysis of Public Sector Management, I have selected a leading public sector organization of India. This public sector undertaking (PSU) is in the oil and gas sector and is one of the leading organizations in the transportation and marketing of natural gas in India. This organization was set up by government of India to create gas sector infrastructure for sustained development of natural gas sector in India. The organization called itself as an integrated gas company and has presence in the entire value of natural gas including exploration and production, processing of natural gas, transmission, distribution and marketing. Today, the organization has reached new milestones with its strategic diversification into Petrochemicals, Telecom and Liquid Hydrocarbons besides gas infrastructure through equity and joint ventures participations. The organization has a dominant position in natural gas business in India and has 78% market share in natural gas transmission and 70% market share in natural gas marketing in India. It also processes the natural gas and markets the C2, C3, C4 products (Ethane, Propane, and Butane etc). Ethan is used in its own petrochemical plant. Propane, Butane and other high carbon compounds are marketed to other Indian oil companies and are used to produce LPG for domestic and industrial consumption. It is also a leading player in the Indian petrochemical sector thanks to its gas based petrochemical plant which has a capacity of 410000 TPA (Tones per annum). It has an ambitious plan to expand capacity of its petrochemical to 1.5 MMTPA in next five years by expanding the existing operation and setting up new petrochemical plants in different parts of India and abroad. Currently the organization has limited presence in power sector but planning to enter in a big way in near future considering the huge demand of electricity in India and encouraging government policies. The organization is planning to make it big in the city gas distribution sector by supply natural gas over more than 1000 cities of India. The organization also has presence in a few international market through joint ventures and subsidiaries though the international exposure is quite limited compared to other oil and gas giants. Apart from natural gas, our chosen organization also has limited exposure in telecom domain through their 13,000 Km long optical fibre cable network. In terms of financial performance, the organization has done very well in last few years and has a turnover of Rs 237760 million in 2008-09 with a net profit of Rs 28040 million. Total number of employees in the organization is around 4000. The financial performance of the organization is given bellow. Vision of our chosen public sector undertaking is to be a leading company in the natural gas domain and beyond with global focus, customer care and create value for all the stakeholders of the company and take care of the environment. The company is trying to achieve its vision through its mission statement which says that the organization accelerate and optimize the use of natural gas to benefit the Indian economy.

3.Organization Structure:

The organization structure of our chosen organization is similar to the typical public sector undertakings. The employees can be divided into two large segments Executives and Non executives. As per the 2009 data, total number of employees in the organization is 3700. In terms of levels, in executive cadre, the organization has 9 layers (E1 to E9). Each of the employee layers, their designations and strength is mentioned in the below table. To join in the executive cadre, one needs a professional degree as bare minimum qualification. The new entrants join the organization in the level of executive trainee (E1 Level). After completing the training period which lasts for one year, they are promoted the E2 level. Most of the promotions are time bound and performance based. It implies that for getting considered for promotion to the next grade, one need to spend a minimum number of years in that level. After completing the required number of years, the selection board compromising of board of directors selects the deserving candidates based upon the individual performance. Government plays a very important role in the higher level promotions as ministry of petroleum and natural gas of India indirectly decided the number of promotions that to be made after E5 level as the final list has to be approved by the ministry. E9 or the executive director is the highest position that one employee can reach through departmental promotion. Board level positioned are completely decided by the ministry and done by open recruitment. When there a position on the board has to be filled, an apex committee called “Public Enterprise Selection Board (PESB)” invites open application from all the eligible candidates and after conducting interview with shortlisted candidates, they finalized the candidate for the board level position. The final selection has to be approved by the ministry of petroleum and natural gas. In non executive level, the organization has 7 levels (S0 to S8). After completing the S8 level, the non executive got promoted to the executive cadre. The organization is mainly executive dominant as only 1051 or the 28% of the total employee strength works in the non executive cadre. Rest 2649 or 72% of the total employees are in executive cadre.

Hierarchical Levels

Name of the Designations

Total Number

CMD Chairman & Managing Director 1
DIRECTORS Functional Director 4
E9 Executive Director 13
E8 General Manager 54
E7 Deputy General Manager 97
E6 Chief Manager 202
E5 Senior Manager 375
E4 Manager 661
E3 Deputy Manager 352
E2 Senior Officer/ Senior Engineer 708
E1 Executive Trainee / Engineer/ Officer 182
S7 Junior Engineer 275
S6 Superintendent 356
S5 Assistant Grade I 53
S4 Assistant Grade II 171
S3 Attendant Grade I 140
S2 Attendant Grade II 9
S1 Attendant Grade III 16
S0 Attendant Trainee 31

Total =3700

Table 1: Organizational Hierarchy Selection is done through both open recruitment and campus interview process for both the executive and non executive cadre.

4.Educational Profile of the employees:

As the organization is executive dominant that need at least one professional qualification while entering, the average education level of the organization is very high. The technical team of the organization consists of around 1100 engineers who basically look after the erection and commissioning, operation and maintenance of natural gas and LPG pipelines. They also take care of the operation and maintenance of the petrochemical plant located in the north India. Apart from engineers, the organization has over one hundred MBAs for looking after different business segments specially marketing division. Finance, one of the key ingredients of business, is entrusted with finance professionals, mostly Chartered Accountants and Cost Accountants. Professionals from Humanities are present in the human resource department and have brought about the creative and the artistic aspect of the company to the fore.

5.Management Structure of the organization:

Top management of our chosen organization consists of chairman and managing director of the organization, 4 full time directors, 2 part time directors who represent the government of India in board meeting, 5 part time non official directors (independent directors). Full time directors represent the different functional areas of the organization which includes finance, human resource, projects and marketing. Its board also has position for one chief vigilance officer and one company secretary. All of the board members are highly qualified and have diverse background which helps board to bring fresh prospective while deciding the future strategy of the organization.

6.SWOT Analysis:

6.1Strength of the organization:

A. Small and flexible

Compared to the other public sector organization, with a few thousand employees this organization is one of the smallest public sector undertakings in India. So there is better communication between the management and employees. The average profit per employee is close to Rs 7 million. So management can take well informed decision and can take view of all the employees regarding its future strategy.

B. Highly educated manpower

This organization is executive dominant. So the large section of the employee base is equipped with professional qualification. Apart from basic professional degrees, many of the employee opted for higher studies thanks to the encouraging education policies of the organization.

C.Government support and backing

As a public sector organization, government of India in the major equity holder in this organization and has a share holding of 70%. So in many cases the organization enjoys the constant support of Indian government.

6.2 Weakness of the Organization:

A.High response time

As a government entity it has a bureaucratic style of functioning and this leads to higher response time. In many cases, it is not possible for the organization to make a fast move to counter the moves of its competitors. As most of its competitors are private entities, they can take faster decision regarding investment.

6.3 Opportunities:

A.High demand of natural gas

TheIndian energy sector is booming in last few decades thanks to the high demand emerged from the growing Indian economy and natural gas has emerged as a major source of energy. In India, coal is mainly used for the source of energy as India has huge amount of low grade coal. But slowly natural gas is emerged as another source due to low cost and its environment friendliness nature. The demand for natural gas in India is primarily driven by power and fertilizer sector. The capital cost of setting up natural gas based power plant is low compared to coal based power plant and it take less time to set up such plants due to compact nature. In fertilizer sector, the gas based plant has a high efficiency rate and the unit cost of production is much less compared to naphtha based fertilizer plant. Also government policy of issuing fresh licenses only to the fertilizer plants based on natural gas has increased the demand manifolds.

B. Environmental concern

Natural gas is the cleanest of all the fossil fuel available. Now the whole world is looking for green energy and alternative clean fuel. As coal not so cleaner fuel and contributed a lot to the emission of greenhouse gases, natural has had an advantage over coal as it is much cleaner as no greenhouse gases are emitted from the burning of natural gas. Natural gas gives less CO2 gas if burned in a furnace or closed chamber and also has a higher efficiency rate. As per the research, per unit of energy its combustion produces 30% less carbon dioxide than oil, and about 45% less carbon dioxide than coal (naturalgas.org, 2010).After the Copenhagen summit, we can expect stringent environment regulations in place to reduce the harmful emission and adoption of cleaner fuels. In this scenario, natural gas will be dominant source of future energy basket.

C. Development of fuel cell technology

Currently many researches is going on the fuel cell technology to use natural gas an input. Fuel cells are battery like devices that use hydrogen to generate electricity. This is a very clean technology as the byproduct water and no greenhouse gasses are emitted in the process. Natural gas can supply this hydrogen as it is a rich source of hydrogen. In near future, fuel cell technology can change the dynamics of the world energy scenario and natural gas will be a key driver (naturalgas.org, 2010). Our organization is tied up with many research institutes to help the development process of fuel cell technology.

D.Transportation Sector

Transportation sector is one of the largest contributors of air pollution in the world. Transportation vehicles like truck, busses, cars etc emits greenhouse and poisonous gases like CO, NO, NO2, CO2, SO2 etc which pollutes the surroundings and creates problems like smog and low visibility (Natural Gas Vehicle Statistics, 2010). Use of natural gas a transportation fuel cut down the level of emission. So there are initiatives to use natural gas as a major transportation fuel. Indian government is also pushing natural gas for city gas distribution which can reduce the demand for LPG and also in transportation though CNG. Delhi has the largest fleet of public transportation system in the world which runs on CNG (naturalgas.org, 2010).

6.4 Threats:

A. Changing regulation in Oil and gas sector

The Indian Oil and gas market is regulated one but it is slowly moving towards an unregulated one. Earlier as a government entity, the organization enjoys complete monopoly and the full freedom and support of government in natural gas sector. But in the recent development, government of India has introduced a regulator to look after the market development. To increase the completion and to break the monopoly, the regulator has changed the playing rules which effects the organization as the market is now open for private players too which bring intense completion in the natural gas sector. In end of 2006, the Ministry of Petroleum and Natural Gas of India has issued a new policy guideline which permitted to have up to 100% equity stakes in pipeline projects by national oil companies, foreign investors and private domestic companies. Now even the transmission tariff is decided by the regulators and new pipeline infrastructure is build after inviting open tender. Earlier, foreign players couldn't enter into the oil and gas sector as Indian government considered the sector as sensitive and having strategic importance. Now they can participate in different projects and can invest alone, as an equity partner or joint venture partner (Natural gas, 2009).

B. No own source of gas

The organization is not very strong in exploration and production areas and primly depends on the other producers to get the natural gas. For this organization, the biggest source of natural gas sourcing is another largest public sector entity of India. But the oil and natural gas fields of that entity is drying up gradually and in near future, it can create problem for our PSU to get natural gas for marketing and it will dry up the revenue.

7. Third party Issues:

The organization is facing many issues with government and other public and private organization of oil and gas sector. Some of these issues are enlightened below.

7.1 Legal battle:

The organization is facing many legal battles with customers and producers of the natural gas regarding the price of natural gas. The major battle is with a leading private sector organization of India regarding the price of natural gas. Our chosen public sector organization has entered in a long term contracts with the private producer to supply gas at $2.32/ MMBTU but later the private company charged $4.2/ MMBTU as per the new policy of the ministry of petroleum and natural gas. Now the case is under the supervision of honourable Supreme Court of India.

7.2 Disinvestment:

As per their long term strategy, Indian government is planning to disinvest all the profit making public sector undertakings so that they can contribute more to the development of nations. The additional money can be use for funding other infrastructure projects undertaken by the government.

8. Strategic Issue:

One of the key strategic issues that our chosen organization is facing since last few years is the sourcing of natural gas in India. The demand of natural gas is increasing in India day by day and there is a huge demand supply mismatch in India. Securing gas supply is always a problem for most of the nations and India is also facing that. There are two alternatives to bridge this natural gas demand supply gap in India - Increase the domestic production of India or import natural gas from producing countries like Russia, Middle East, and Africa etc. Here I am trying to analyse both the alternatives and the response of the management to deal with this situation.

9. Global Natural gas Industry:

The analysis of global natural gas industry can be done in two dimensions - the supply side economics and the consumption. From supply point of view, proven natural gas reserve in world is around 185.2 trillion cubic metres (TCM) as per the BP statistical review published in 2009. Out of this, more than 75% of the total proven reserves are found in Middle East and Eurasia. In 2009, the total production of natural gas across the world was 3065.6 billion cubic metres. The world production was led by Russia Federation with estimated production of 602 billion cubic meters followed by United States with 582 billion cubic meters and Canada with 175 billion cubic meters. Among Middle East countries, Iran was the highest producer of natural gas with a production of 116 billion cubic meters. Being an efficient and clean fuel compared to other fossil fuels, demand for the natural gas is surging. The comparative comparison of natural gas with other fossil fuel is given bellow.
Fixed Cost (cents/kWh) Variable Cost (cents/kWh) Total Cost (cents/kWh)
Coal 4.1 3.3 7.4
Natural gas 2.8 7.8 10.6
Nuclear 8 0.8 8.8
Wind 8.2 0 8.2
Table 2: Power Generation Costs for Various Energy Sources in 2008 (Montana Environmental Information Center, 2010)
Energy return on Energy Invested
Coal-fired power plant 2.5
Nuclear power 4.5
Hydroelectric power 10
Wind power 35
Natural gas 10.3
Table 3: Energy Return by Source in 2008 (Suzlon FY 07-08 Annual Report, 2008) From consumption point of view, Total global consumption of natural gas in 2008 was anticipated to be 3018.7 billion cubic metres (BCM). The major consuming countries of natural gas are United Stated with a annual consumption of 657 billion cubic meters (BCM) followed by Russian Federation with 420 billion cubic meters (BCM), Iran with 117 billion cubic meters (BCM)and Canada with billion cubic meters (BCM) (BP Statistical review, 2009). If we analyse industry wise, the industrial sector consumes the highest amount of natural gas followed by power sector. As per the data released by Energy Information Administration in 2009, the industrial consumption of natural gas going to increase many folds and is expected to be around 40% of total global consumption by 2030 (EIA, 2009).

10. Natural gas Sector scenario of India:

India's total proven natural gas reserves was about 1.08 Trillion Cubic Metres (TCM). The total gas production in the country was about 31.8 Billion cubic metres (BCM) (Natural gas, 2009). Major part of the natural gas production in India comes from the western cost and the Bombay High region. Other major natural gas producing areas in the countries are Assam, Gujarat and Andhra Pradesh. Domestic production is not enough for meeting the demand. So India imports natural gas in the form of Liquid Natural Gas (LNG) from Middle East countries. From the demand side, power and fertilizer are the two most demanding sector and this two together completes almost 70% of the total natural gas consumption of India. The sector wise consumption of natural gas is given below.If we see the primary energy consumption data of India and compare it with the world average, then we can see that there is huge scope in the natural gas sector. In India, natural gas constitutes 9% of the primary energy basket where as 24% of the total world primary energy basket is filled by natural gas

11. Managerial Response of the organization:

To counter the increasing competition and to accelerate the growth, the top management of the organization has developed a long term strategy which addressed the future need and growth of the organization in India and abroad. This strategy is also going to deal with the strategic issue of sourcing that we have mention earlier. The strategy of our chosen organization focused on the four areas.
  1. Protect Natural Gas Business
    1. Natural Gas Trading
    2. Natural Gas Transmission
  2. Upstream integration (Organic & Inorganic Growth)
  3. Downstream integration (Organic & Inorganic Growth)
  4. Global diversification across value chain
Core strength of our chosen organization is natural gas transmission and marketing. Around 70% of the total revenue comes from this two business segment. But the competition is increasing in these two segments after the changes in the law. The latest regulation in the oil and gas sector has given the exclusive marketing right to the producer of natural gas in India. As the producer started to market their own natural gas production, the marketing share of our organization started to erode. So the first priority of the organization is to protect its prime revenue source. The management is planning to lay new gas and LPG pipelines and create a nationwide natural gas networks for distribution of natural gas efficiently. It is also looking to tie up with the producers to transport and market their gas. The second strategic decision of the organization is to go for upstream integration. Apart from organic growth, it may go for inorganic integration for securing a quick growth. For inorganic growth, it is looking for merger and acquisition with similar kind of organization in both India and abroad. Right now it has a few subsidiaries and joint ventures in countries like Egypt, China and Singapore. The prime motive behind the upstream organization is to secure the source of gas for transportation and marketing. Right now the organization has 24 E&P blocks in India including 3 CBM blocks and 3 E&P blocks aboard. Management is looking for participate in the bidding process of more and more E&P blocks to secure more natural gas. In downstream integration, the organization is looking for businesses like power, fertilizer and petrochemicals to get more revenue. Currently the organization has small presence in the power sector of India through a joint venture of Gujarat. The case is identical in fertilizer sector where it has tied up with one of the leading fertilizer company of India to produce fertilizer using natural gas as a raw material. In petrochemical business, the organization is already one of the top players with a 410 thousand tones capacity petrochemical plant. Petrochemical business contributes to 38% of the total profit of the organization. As the penetration of petrochemical products in low in India compared to world average and there is a huge demand supply gap, our organization is expecting to get a large share of its revenue and profit from this segment. Under the global diversification strategy across the value chain, the organization is looking for E&P participation in aboard countries to secure more gas. It is also looking for both equity and joint venture participation aboard specially countries of Middle East and Africa to set up petrochemical plants and import the final product to India for marketing. The organization is also trying to leverage its core strength of gas transportation business and planning to develop the gas infrastructure networks in African countries like Algeria, Nigeria etc.

12. Conclusion:

From the above discussion, this is evident that the public sector undertaking is facing a lot of challenges due to the dynamic nature of the oil and gas industry and the price fluctuation of the natural gas and petrochemical products. Though the long term strategy, the management of the organization is trying to address both short and long term need of the organization. In short term, the priority for the organization is to get the required amount of natural gas to bridge the gap between demand and supply so that the economic growth of the country doesn't hamper. In long term, it is vital for the organization to get secured source for natural gas. In India natural gas is very demand for traditionally being driven by power and fertilizer sector as well as with city gas distribution and industrial sector emerging as very developed and growing market for used of natural gas. The value of natural gas is exchange of hydrocarbon in the energy policy in India and pushing it to centre of the all stack holder in the value chain.

13. Recommendation:

  • Management of the organization should look for tie ups with producers & suppliers for marketing & transmission of natural gas on long term and sustainable basis. This can be done in two stages.
  • Securing more gas from new gas finds by entering strategic partnerships with the producers or enhancing the E&P division by investing more.
  • Early finalization of contracts with customers & suppliers for secure revenue
  • Management of the organization should expand pipeline infrastructure by laying new pipelines as well as upgrading existing ones to cater the need of the producer and customer. If the producer founds the pipelines in their door steps, they are bound to use them rather than laying their own pipelines.
  • Management should roll out city gas/CNG in more cities (target 230 cities) and 5 corridors in a phased manner to increase the industrial, transportation and domestic consumption.
  • Petrochemical business is one of the most profit generating areas for this organization and management should look for expanding the existing Petrochemical capacity and also explore green field participation in new ventures in India & abroad. It can look for the
  • For Globalization, management should focus on areas having synergy with existing businesses by entering into new and emerging gas rich countries with focus on sourcing of gas and participation in downstream activities. Examples of such businesses are power and fertilizer.
  • Develop E&P as a self-sustainable business by investing heavily and having strategic partnership with the oil and gas exploration giants to have equity or joint venture partnership
  • It should also look for new areas of production of natural gas like shale gas and gas hydrates by having tie ups with research institutions and similar minded organizations.

14. References:

  1. BP Statistical Review 2009, Statistical Review of World Energy 2009,Available http://www.bp.com/productlanding.do?categoryId=6929&contentId=7044622Last accessed 21 April 2010.
  2. Energy Information Administration. (2009). International Energy Outlook.Available: https://www.eia.gov/outlooks/ieo/index.php.(Last accessed 21 April 2010.)
  3. Natural gas and the environment. (2010). Natural Gas Org..Available: http://www.naturalgas.org/environment/naturalgas.asp#greenhouse/.(Last accessed 21 April 2010. )
  4. Natural Gas. (2009). Ministry of petroleum and natural gas.Available: http://petroleum.nic.in/ng.htm.(Last accessed 21 April 2010.)
  5. First Solar Corporate Overview. 2010. First Solar.Available:http://phx.corporateir.net/External.File?item=UGFyZW50SUQ9MzYzMzd8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1(Last accessed 21 April 2010.)
  6. Natural Gas Vehicles statistics. (2010). International Association for Natural Gas Vehicles.Available: http://www.iangv.org/tools-resources/statistics.html(Last accessed 21 April 2010.)
  7. Montana Environmental Information Centre. (2010). Global warming.Available: http://meic.org/energy/global_warming_pollution/blm-greenhouse- gas-settlement.(Last accessed 21 April 2010.)
  8. Suzlon FY 07-08 Annual Report, Management Discussion and Analysis. p. 5.Available: http://www.suzlon.com/Publication.aspx?cp=3_1
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