STRENGTHENING ETHICAL CORPORATE GOVERNANCE IN OIL, GAS AND PETROCHEMICAL SECTOR IN INDIA & OFF-SHORE

2 Strengthening Ethical Corporate Governance in Oil, Gas and Petrochemical Sector in India & Off-shore

AGENDA FOR CONSULTAION

Strengthening Ethical Corporate Governance in Oil, Gas and Petrochemical Sector in India & Off-shore 3

INTRODUCTIONThe Global Compact Leaders’ Sum-mit - 24 June 2004, UN Headquar-ters, chaired by Secretary-General Kofi Annan, assembled hundreds of corporate executives, government officials and civil society leaders at UN headquarters to take stock of the Global Compact and chart its future course. After extensive dis-cussions with the participants, the Secretary-General announced the adoption of a tenth Global Compact principle "Businesses should work against corruption in all its forms, including corruption and bribery”.

Since 2011, Global Compact Net-work India, through its flagship ‘Collective Action Project – a UNGC Siemens Integrity Initiative’ was instrumental in bringing a diverse group of stakeholders on a com-mon platform, facilitate discussions on issues related to corruption and explore solutions to curb graft

over a four year period from 2011-2015. Simultaneously, since 2013, under the “Strengthen Ethical and Transparent Corporate Governance Project”, a part of the UK Prosper-ity Fund India Programme, GCNI consolidated its achievements from the earlier project and focused on strengthening ethical corporate governance in India.

Both the above mentioned pro-jects helped GCNI to understand the anti-corruption landscape of the country and the areas of governance which needed work. Incorporating feedback and recommendations of stakeholders, GCNI released a White Paper on “Strengthening Eth-ical Corporate Governance” at the event which presented International frameworks & Indian Policy regime on Corporate Governance, Chal-lenges of Ethical Business Conduct in India and focused recommendations.

The proceedings for the day were started by Ms. Shabnam Siddiqui, Project Director, Global Compact Network India. Ms. Siddiqui briefly spoke about the journey of Global Compact Network India from implementing nine principles of UNGC on three basic themes of human rights, women principles and environment to adoption of the 10th principle on Anti-Corruption and furthering the agenda of clean business operations.

Ms. Shabnam Siddiqui, Project Director, Global Compact Network India


WELCOME SESSION

The welcome session was hosted by Ms. Jatinder Peters, Secretary, Petrotech. Ms. Peters welcomed the gathering, shared the layout for the day as well as introduced the dignitaries of the Welcome Panel.

Dr. Uddesh Kohli, Senior Advi-sor, UN Gobal Compact, welcomed stakeholders to the National Con-sultation on Strengthening Ethical Corporate Governance in Oil and

Gas Sector in India and Off Shore. He spoke about the merits of ethical corporate governance and quoted the example of TATAs, who are well known for their ethical conduct. He proposed that the consultation should look at what has been done so far and what should be the future course of action viz a viz a more transparent governance of the oil and gas industry. He suggested that new ideas and initiatives should be explored with the aim to benefit the society at large.

Ms. Claire Tynte-Irvine, Head, Prosperity, Economic and Trade Policy, British High Commission, shared her thoughts on Trade, Tax and Transparency, which are key to improve the global economy. Cor-ruption exists across businesses, government and among citizens, which affects taxes. She said that British High Commission is working closely with a number of interna-tional partners on international tax agenda. Ms. Tynte-Irvine cited that corruption evades trust between businesses, society and nations. An estimate on the annual cost

imposed by corruption accounts up to 5% of Global GDP, 25% of the total cost of procurement in developing countries and 18-29% of business costs globally. Apart from financial costs, the reputational cost are also very high - corruptiopn cannot be ignored. Transparency is critical in handling corruption & it is important that a platform for collaboration with stakeholders and building public pressure is nurtured to tackle graft.

Ms. Jatinder Peters, Secretary, Petrotech, hosting the welcome session

Dr. Uddesh Kohli, Senior Advisor, UN Global Compact

Ms. Claire Tynte-Irvine, Head, Prosperity, Economic and Trade Policy, British High Commission


Ms. Tynte-Irvine further mentioned that one of the important steps taken by UK is the introduction of the Anti-bribery Act in 2010 which looks at cross territorial application by imposing penalties on UK compa-nies, irrespective of their geograph-ical location of operations. With an aim to propagate clean business and endorse international guide-lines such as UNGC’s Principle 10, UK has also built an anti-corrup-tion portal. The government of UK has published a national plan which describes ways to tackle graft within the country and abroad.

Ms. Tynte-Irvine emphasized that since corruption incurs a cost on businesses, companies can bene-fit by acting together to prevent and tackle corruption. One way of doing this would be to look at sector spe-cific corruption. In 2012, an extensive research was done on corruption cases investigated in 2006. The data had around 50 cases of graft reported of companies in the Oil and Gas sec-tor. The report suggested that Oil and Gas sector does not have an adequate internal structure and complaint sys-tem, which makes this sector vulner-able to corruption. She applauded the initiative of GCNI and Petrotech in putting together this consultation and getting experts from the Oil and Gas

industry to deliberate upon pressing issues of the sector.

White Paper on Strengthening Ethical Corporate Governance was launched at the Welcome sessionDr. A. K. Balyan, Managing Direc-tor & CEO of Petronet LNG Limited, began his address by saying that there were times when companies were known for their products and services, but now companies are recognized for ethical conduct. He raised a very pertinent question – How do you really then bring about such a transformation?

Apart from the CEO, the top man-agement can play a pivotal role in bringing about transparency in business operations. Leadership companies are one which have pool of leaders who do not shy away from decision making. In leader-ship companies, leaders are open to discussions hence decisions are better, well debated and therefore there is transparency in decision making. Companies these days are no longer driven by one man. Citing an example of such a transforma-

White Paper launch on Strengthening Ethical Corporate Governance during the Welcome Session

ALL THE LEADERS MUST HAVE ONE COMMON AGENDA – STRIVE TOWARDS ETHICAL WORKING OF THE ORGANIZATION. THEY SHOULD BE ON A CONSTANT LOOK-OUT FOR BEST PRAC-TICES TO IMPROVE THE ORGANIZATIONS FUNCTIONALITIES”- DR. A. K. BALYAN, MD & CEO, PETRONET LNG LIMITED


tion in ONGC, Dr. Balyan spoke at length about the company’s suc-cess of decentralization of author-ity. At one point of time, financial and other important decisions were taken solely by the CEO, a top-down approach. But, at present, Project Heads take project and department related decisions and have adopted a bottoms up approach – a land-mark change for a public sector undertaking. For such decentrali-zation there is always resistance in the beginning. The key to overcome such resistance is debate on policy matters and putting forth recom-mendations on improving systems and procedures for better quality and time utilization. Giving away power is not easy but there are three parameters which all lead-ership companies should follow in order to bring about this change.

Firstly, all the leaders must have one common agenda – strive towards ethical working of the organization. They should be on a constant look-out for best practices to improve the organization’s functionalities.

Secondly, how do you bring about transparency in all aspects of work-ing? Quoting the example of ONGC he said in the past transfers were considered a tool of punishment, the organization was not gaining respect and faith from the employ-ees. When Dr. Balyan took on the

mantle of Director – HR he pro-posed a new transfer and job rota-tion policy. The proposed policy was discussed and debated and within a year a new policy was introduced. The transfers were put on notice boards and a mandatory rural post-ing was framed as a policy. This brought in a change in the mindset of the employees and they became more contributing to the organiza-tion.

Thirdly, he focused on develop-ing customer – loyalty towards the organization. He illustrated through an example, a Spanish company manufacturer of edible oil called back an entire batch of its prod-ucts as they had a slight change in the proportion of ingredients. The company announced that in case of any health issue faced by the clients the organization will be liable to pay the treatment cost. There were no issues reported, but this public announcement enhanced the repu-tation of the company.

Dr. Balyan concluded by saying that in the last 15 years, there has been a drastic change in the oil and gas sec-tor. Currently India is moving towards becoming a refining hub, petro-chemicals is one such area which is gaining momentum. This sector is investment intensive and hence it is important for the companies to know about international practices (pro-

Dr. A. K. Balyan, Managing Director & CEO of Petronet LNG Limited

Mr. Ashok Anand, Director General, Petrotech

THERE IS A NEED FOR THE CORPORATE SECTOR TO REALIZE THAT THERE CAN BE NO COMPROMISE AND NO SHORTCUTS TO SUCCESS”- MR. ASHOK ANAND, DIRECTOR GENERAL, PETROTECH

cesses). Debates and discussions should be held while formulating pol-icies. One of the policies worth dis-cussing is giving equal opportunities to PSUs and foreign players.

Mr. Ashok Anand, Director Gen-eral, Petrotech, concluded the inau-gural session by saying that there is a need for the corporate sector to realize that there can be no com-promise and no shortcuts to suc-cess. India imports almost 80% of its crude oil from other countries and the demand is set to increase. If the country wants to progress it requires energy, energy requires money and there could be no other sector than oil and gas sector which has money.

There are existing compliance prac-tices in the oil and gas sector, these policies and practices need to be enhanced to match and fully com-ply with UNGC’s Principle 10 on Anti-Corruption. He concluded by reporting a case of Jessica Harper, a former Lloyds bank worker who was jailed for five years for a £2.4 mil-lion fraud. She committed this fraud while she was heading the fraud and security for digital banking at the company. Mr. Anand said that there were two important takeaways from this case – why do good employees become so bad when it comes to money and why did such a big bank take four years to unveil the scam.


Ms. Claire Tynte-Irvine set the tone of the session by putting forth the issues to be deliberated by the panelist. She said that the focus of the session would be on under-standing the compliance policies, culture of transparency within a company and room for peer learn-ing among the Oil and Gas compa-nies. Oil and Gas sector has a huge impact on the environment. How a company addresses the environ-mental issues, goes a long way in creating its brand image. She gave the example of British Petroleum (BP). BP was accused of Oil spill in the American waters which led to environmental disaster and the company gained negative public-ity. It was an uphill task for BP to change its image from a company accused of creating environmental disaster to a responsible company.

PANEL DISCUSSION

NATIONAL & INTERNATIONAL COMPLIANCE POLICIES AND PRACTICES OF OIL, GAS AND PETROCHEMICAL SECTOR

Ms. Tynte-Irvine raised vital ques-tions pertaining to complex nature of the sector and accountability aspects of the organization; how do oil and gas companies see corporate gov-ernance, is it merely a legal matter or is it about compliance? With the government trying to attract Foreign Direct Investment (FDI) in the oil and gas sector what are the kind of cor-porate governance issues that comes with new partners, new entrants and new culture? With the addition of Shale oil into the market by U.S com-panies, how are Indian companies going to handle the competition?

Dr. A. K. Balyan said that there is tremendous pressure on the Oil industry as the sector is infested with high volatility and uncertainty. The investments are huge along with long gestation periods, making

(Left-Right) Mr. Arun Kumar Jain, Dr. A. K. Balyan, Ms. Claire Tynte-Irvine and Mr. Alok Mishra

OIL AND GAS SECTOR HAS A HUGE IMPACT ON THE ENVIRON-MENT. HOW A COM-PANY ADDRESSES THE ENVIRONMENTAL ISSUES, GOES A LONG WAY IN CREATING ITS BRAND IMAGE”- MS. CLAIRE TYNTE-IRVINE, HEAD, PROSPERITY, ECONOMIC AND TRADE POLICY, BRITISH HIGH COMMISSION


the sector prone to corruption. Cur-rently, there is an unprecedented fall in the crude oil prices. With the fall of price to about USD 50 per barrel, one wonders why crude oil was once sold at USD 100 / barrel. If countries can sustain at USD 50-60/ barrel, with the fundamentals of demand and supply theory one tends to think that there was something wrong within the sector when crude oil was selling at USD 100/ barrel. However, the rules of the games in Oil and Gas are totally different.

Liquefied Natural Gas is another sector which is unique and complex to understand. The world is divided into 3-4 segments with different prices prevailing in each segment. The Indian economy imports 80% of its Oil and Gas needs, no price regime can give a favorable bargain to such huge requirement.

If a company is doing fairly well, it is slightly easy for them to adopt transparent business practices but a company which is not able to sus-tain itself, getting business becomes the prime goal and transparency is secondary. The management of such companies is under tremen-dous pressure to get business, the end result matters more than the means. Some of the challenges of the Oil and Gas Sector are:-

1) Pressure on the profits of the companies as compared to the finances invested.

2) Pressure of disclosing the assets of the company. Example com-panies do not like disclosing the oil reserves and the quantum of exploration expected. How-ever companies who do that are regarded high on ethics.

3) How do you sustain in the volatile business environment where the regulatory mechanism is changing. How do you keep company practices at par with the international standards when the operations are geographical spread and some geographies face difficult political and economic situations.

4). Public Private Partnership Model in such an investment intensive industry.

Dr. Balyan concluded by saying that the oil and gas sector has received the highest FDI in the country in the last decade and is poised to secure more investment. The projected growth of the refining sector is 250 million tones with petro products becoming prominent exports for the country, along with development of petrochemical complexes. This aggressive growth scenario has put the oil and gas companies under tre-mendous pressure. However com-panies should not compromise on ethics in their business operations.

Mr. Arun Kumar Jain, MD, Fluor Daniel India Private Limited, pro-vided insight on some practical measures, policies and business standards followed by Fluor Daniel. He spoke briefly about the company and outlined that around two-third of their business worldwide and 95% of their business in India is

related to oil and gas sector. A cli-ent survey conducted by Fluor sug-gested that clients perceive Fluor to be an ethical organization. Some of the values which are integrated in the operations of Fluor are integrity, safety, quality and excellence. The company has a well-drawn code of business ethics for all its stake-holders; clients, third parties and vendors.

In India, Health, Safety & Environ-ment (HSE) is vital for companies working in 3rd party contracts. Fluor has measures to ensure safety and health of the environment and workers. Quoting an example Mr. Jain said that in India diesel drums on the road side is a common occur-rence but with contracts in which Fluor is involved there no drum or any unnecessary obstruction found on the roads. Fluor has an image of being environmentally responsible.

Mr. Arun Kumar Jain, MD, Fluor Daniel India Private Limited

IF A COMPANY IS DOING FAIRLY WELL, IT IS SLIGHTLY EASY FOR THEM TO ADOPT TRANSPARENT BUSI-NESS PRACTICES BUT A COMPANY WHICH IS NOT ABLE TO SUS-TAIN ITSELF, GETTING BUSINESS BECOMES THE PRIME GOAL AND TRANSPARENCY SEC-ONDARY”- DR. A. K. BALYAN, MD & CEO OF PETRONET LNG LIMITED

Weeding out issues of child labor, forced labor, data theft, work place harassment are keys to ethical conduct. Treating workers with respect and conducting operations in non-discriminatory manner is in the DNA of Fluor.

Mr. Jain emphasized that financial and operational controls are important aspects of ethical corporate governance. Fluor demands accurate, fair, timely and


transparent books of accounts from their contractors. There are certain business related information which should not go public as they could be used for bid rigging and insider trading. To ensure that there is no foul play in the bidding process, Fluor has clear guidelines towards zero tolerance to corruption. Fluor has a ‘Code of Business Conduct and Ethics” in which receipt of a gift should fall under four guidelines enlisted under its code of ethics and should not unduly affect business decision. Fluor has a limit on 3rd party agents that they employ to get contracts.

Finally money laundering is a press-ing issue in contracts related to the Oil and Gas sector. To counter money laundering Fluor has a strict policy of no cash in business transactions. Mr. Jain concluded by saying that com-peting fairly is the most essential aspect of ethical governance.

Mr. Alok Mishra, Company Secre-tary, Mahanagar Gas Limited, gave a broad perspective about corporate governance and defined corporate governance as application of best management practices, compli-ance with law and adherence to ethical standards. Corporate gov-ernance could lead to equitable dis-tribution of wealth and discharge of social responsibility for sustainable development of all stakeholders. The ultimate objective is twofold: a) Enhancement of the value in the hands of the stakeholders and b) operating within the legal frame-work for sustainable development.

Corporate governance is a self – integrated process. Some of the essential pillars are transpar-ency, accountability, adherence to law, trust, fairness and equity. Mr. Mishra raised a very pertinent question of who is responsible for propagating corporate governance. Corporate governance is generally the responsibility of the owners and administrators, who connect the various stakeholders of the busi-

ness such as suppliers, customers, lenders, employees and regulators. Further, Board of Directors should have the knowledge, experience, integrity, team spirit, positive atti-tude, power to motivate, willing-ness to learn, intention to provide complete information and capacity of decision making, guide and steer the team which could aid in adopting corporate governance. There should be freedom to voice opinions, ability to demonstrate and perform and willingness to be evaluated.

Mr. Mishra said that along with thinking about growth it is impor-tant to mitigate risks. Businesses require three things to sustain in the market; to compete for quality

Mr. Alok Mishra, Company Secretary, Mahanagar Gas Limited

and place, to allow others to play the game fairly and honestly and pay taxes for the benefit of the society.

Mr. Mishra concluded by saying “Corporate Governance is a journey not destination. Start now. Tomor-row will be too late”.

On a question from a participant as to how does one ensure that all suppliers are adhering to transpar-ency values, Mr. Jain said that from the point of view of a subcontractor, price is not the only indicator. There are certain prequalification proto-cols to be adhered to and companies need to do periodic social conduct audits as well as covers policies.

Dr. Balyan added that vendors should be given adequate informa-tion about contract period, bidding cost etc. Annual meets with the ven-dors should be held. When Integrity Pact was introduced it brought in a landmark change for the contractor and seller that they could approach a neutral forum of independent moni-tors. This brought in a lot respect, transparency and comfort and facili-tated in taking timely decisions.

In ConclusionMr. Arun Kumar Jain sharing expe-riences from Fluor’s recently com-pleted project in Dahej, India said that in Oil and Gas sector, as with other industries, human resource development should be viewed as an important aspect for industrial success.

Dr. Balyan gave another example wherein construction of an LNG terminal at Kochi, that was ready to supply 5mmt of gas, got delayed due to absence of pipelines. He said that clear guidelines go a long way in positively impacting the function-ing of the project.

Mr. Mishra said that corporate gov-ernance can only be adhered to by companies when all the stakehold-ers wish to follow it.

CORPORATE GOVERNANCE IS A JOURNEY NOT DESTINATION. START NOW. TOMORROW WILL BE TOO LATE”- MR. ALOK MISHRA, COMPANY SECRETARY, MAHANAGAR GAS LIMITED


BREAKOUT SESSION - I

CHALLENGES, GOOD PRACTICES, RECOMMENDATIONS AROUND ALLOCATION/ EXPLORATION AND SUPPLY CHAIN

Ms. Jot Prakash Kaur, Research Officer, GCNI, hosted the breakout sessions and introduced the subject experts

Allocation and ExplorationMr. A. K. Dwivedi, Director Explo-ration, ONGC, gave a brief back-ground of Indian Oil and Gas sector citing that since independence this sector has been dominated by state runs units and nothing much has changed on the domestic front till date. The national companies play a vital role in exploration and pro-duction, such as ONGC, Indian Oil, among others. Through the efforts of national oil companies, sedimen-tary area basin of more than 3 lakh km was covered for exploration. To

make exploration and production cost effective and competitive, pol-icy change was required. This led to the introduction of New Exploration Licensing Policy (NELP), that laid guidelines on allocation of blocks to companies for service contracts. NELP1 came in 1999 with an idea to offer competition and its major objective was to enhance Explo-ration & Production. Initially there was apprehension as there was fear of failure of the policy due to monopolistic nature of the market. NELP1 encouraged foreign oil and gas companies to compete. With each revised NELP (from NELP1-NELP6) the private sector participa-tion increased. But between NELP 7 and NELP 9 the participation of the private companies decreased. This did not deter the government to for-mulate NELP 10, as it was targeting

Ms. Jot Prakash Kaur, Research Officer, GCNI

(Left-Right) Mr. Anil Sachan, Mr. A. K. Dwivedi and Mr. Nitin Banerjee


towards laying guidelines for alloca-tion of acreages.

Mr. Dwivedi listed some of the chal-lenges in the exploration segment of oil and gas sector. To ensure transparency in allocations – inter-est of owner, government and pri-vate companies, who are the major stakeholders in businesses and role and governance structure of the regulator should be carefully scru-tinized. Mr. Dwivedi said that a reg-ulator should be progressive (solu-tion oriented) due to high stakes in this sector. Over a period of time government has come up with a lot of remedial measures. He added that transparency is required to cre-ate a friendly business environment.

In terms of technological intervention, the investors need sufficient motivation to bring in the latest technology. Concerns were flagged about multiple agency clearances such as Ministry of Environment, Ministry of Petroleum and Natural Gas, Ministry of Forestry, Ministry of Defense which conduct naval exercises and space programs on areas located near the reserves. The clearances are numerous and time consuming. In case of international projects it gives negative publicity to the country where the reserves are located. National data repository

system seems to be a solution to some of these issues. Willingness of the government, regulator and companies is vital to address the above mentioned issues.

Supply Chain Mr. Anil Kumar Sachan, Head – Material Management, ONGC, spoke about sustainable and trans-parent supply chain. He gave a brief outline about the characteristics of high risk high return of oil and gas industry. He illustrated the supply chain issues through the exam-ple of a project that involved laying pipelines from Tapi Basin to Delhi, wherein a minor fault in the pipes could disrupt the entire supply of oil. He said presently the supply chain management is working well in the western part of the country but is weak in the North East.

Mr. Sachan spoke about several ethical issues related to supply chain management like favoritism, bribery and lack of business integ-rity, labor related issues such as long working hours, safety, ade-quate medical and emergency facil-ities and environmental issues like pollution prevention, treatment and disposal of waste water.

ONGC is taking initiative of using electronic procurement as a

method to procure goods and ser-vices of above INR 1 crore. ONGC is also the first Public Sector Under-taking (PSU) to introduce Integrity Pact in procurement processes to ensure fair selection of contractors. Mr. Sachan suggested that there should be:

• A reporting and feedback mech-anisms for vendors.

• Assurance of timely payment to vendors.

• Contracts should be mandated to adopt HSE (Health Safety Envi-ronment) and Labor policies. This should be made as tender requirement in prequalification process.

• Public reporting on performance using systematic reporting framework including informa-tion about tenders finalized and contractor details.

Mr. A. K. Dwivedi, Director Exploration, ONGC

Mr. Anil Kumar Sachan, Head – Material Management, ONGC

ONGC IS TAKING INI-TIATIVE OF USING ELECTRONIC PRO-CUREMENT AS A MEDIUM TO PRO-CURE GOODS AND SERVICES OF ABOVE INR 1 CRORE. ONGC IS THE FIRST PUBLIC SECTOR UNDERTAK-ING TO INTRODUCE INTEGRITY PACT IN PROCUREMENT PRO-CESSES TO ENSURE FAIR SELECTION OF CONTRACTORS”- MR. ANIL KUMAR SACHAN, HEAD – MATERIAL MANAGEMENT, ONGC


Mr. Nitin Banerjee, Legal Counsel, BG Group, established the relation between ethical conduct and busi-ness by mentioning that an ethical company attracts investors and good human resource. Ethical conduct is critical to developing a sustaina-ble and transparent supply chain. He also spoke about the UK Bribery Act 2010 which consists of six prin-ciples; risk assessment, top level commitment, due diligence, clear practicable & accessible proce-dures, effective implementation and monitoring & review. He explained these principles through the exam-ple of LNG project in UK which was aborted due to allegations of bribery.

Mr. Banerjee spoke about the work of BG group which conducts due diligence for companies. He raised three questions: • Does transparency contradict

sustainability?• Is contractor relationship a must

in developing a sustainable sup-ply chain?

• What are the dilemmas of devel-oping a transparent and sustain-able supply chain?

In ConclusionMr. Dwivedi said systems take time to evolve. For example earlier, explo-ration sites were given on nomina-tion bases. A clear policy on explo-

ration and allocation was desired which came into being in forms of New Exploration Licensing Policy (NELP) in 1999. After the liberaliza-tion, government wanted transpar-ency in capital, usage of technology and fair competition in all the major activities of Oil and Gas sector, this was echoed in the NELP regime.

Mr. Banerjee explained that oper-ational cycles in oil and gas sector are considered to be long because of geological, technical, regulatory clearances and uncertainties, but most likely supply chain procure-ment cycle is not more than for two years. For a sustainable supply chain

accessibility to tender process. Most of the companies have intro-duced e-tendering to make the bid-ding transparent. Currently, all the tenders worth INR 1 crore and above are electronically tendered. There have been discussions to reduce this threshold value to INR 10 lakhs.

2) Introduction of Integrity Pact to curb corruption. Private sector is yet to adopt the IP.

3) Whistle blower protection. Companies should provide support to whistle blowers.

4) Extend transparency and

Mr. Nitin Banerjee, Legal Counsel, BG Group

OPERATIONAL CYCLES IN OIL AND GAS SECTORARE CONSIDERED TO BE LONG BECAUSE OF GEOLOGICAL, TECHNICAL, REGULATORY CLEARANCES AND UNCERTAINTIES BUT MOST LIKELY SUPPLY CHAIN PROCUREMENT CYCLE IS NOT MORE THAN FOR TWO YEAR”- MR. NITIN BANERJEE, LEGAL COUNSEL, BG GROUP

it is important to train the employ-ees on a regular basis. It is impor-tant to trust the ability of employees, empowering them will help in main-taining high ethical standards.

Mr. Sachan opined that instead of developing long term relation-ship with one vendor it is better to develop long term relationship with multiple vendors to ensure compe-tition and good services. He added that developing sustainable supply chain is a ‘work-in-progress’.

Mr. Sachan outlined some of the recommendations to strengthening ethics and corporate governance in the supply chain system.

1) Increase transparency and

anti-corruption practices to con-tractors and sub-contractors. Successful bidders sign the Integrity Pact with the contractors. As per the provisions of IP, contractors have the responsibility to sign IP with the sub-contractors.

5) Ensure timely payments to business partners. Companies should make timely payment to its vendors and in case of delays, the delay should be justifiable.

6) Vendor rating. It is important to bring quality vendors right from the beginning of the tender process. Vendor rating could give a clear picture on the performance of the vendors. The parameters for such rating should be deliberated.


7) Incentive- penalty clause. There should be incentive and penalty clause in the contract.

8) Bring clarity on document requirements for the contracts. This could help in fixing accounta-bility in the supply chain.

9) Build Trust with external stake-holders.

10) Establish excellent communi-cation throughout supply chain.

11) Develop internal reporting & feed-back mechanisms for contractors.

12) Adopt best practices on HSE, Labor. HSE and Labor policies should be included in prequalifica-tion process. Certain kinds of con-tracts require special care to imple-ment health and safety norms.

13) Work with contractors and ensure compliance with environ-ment protection laws. Environ-mental protection is everyone’s business. It is not limited to major companies.

INSTEAD OF DEVELOPING LONG TERM RELATIONSHIP WITH ONE VENDOR IT IS BETTER TO DEVELOP LONG TERM RELATIONSHIP WITH MULTIPLE VENDORS TO ENSURE COMPETITION AND GOOD SERVICES. HE ADDED THAT DEVELOPING SUSTAINABLE SUPPLY CHAIN IS A ‘WORK-IN-PROGRESS’”- MR. ANIL KUMAR SACHAN, HEAD – MATERIAL MANAGEMENT, ONGC

14) Complete environmental, social and health impact assessments, if possible before signing contracts.

15) Direct engagement with con-tractors and sub-contractors to implement mechanisms to respond to community grievances.

16) Contractors and sub-con-tractors to follow S.O.P on vari-ous operational activities as per industry standards. If there is

some industry code of conduct to be adhered to, personal protection equipment to be used and contrac-tors and sub-contractors should follow safety instruction norms.

17) Public reporting on perfor-mance using systematic reporting framework, including information about tenders finalized and contrac-tor details. Public reporting to follow strict regulations.


BREAKOUT SESSION - II

CHALLENGES, GOOD PRACTICES, RECOMMENDATIONS AROUND REGULATOR FRAMEWORKS AND DISCLOSURES/REPORTING

Mr. S. Rath, Board Member, Oil India, spoke about the procedures of the public sector, a tendering process involving numerous doc-uments, the relevance and mean-ing of which might not be correctly understood by the operational man-agers. Due to procedural hassles many foreign companies hesitate to invest in India. He said that there has to be partnership between contrac-tor, government and regulator. The policy guidelines should not change with changing government and in case there is change, it should indi-cate progressiveness.

To a question asked by a participant as to what changes are required in the contractual system in upstream sector to make it more business friendly and what should be done to

get clearances, Mr. Rath responded that contracts should be aligned with best practices of company. Contracts should define payment norms clearly and have its own payment policy.

Ms. Aditi Haldar, Director of GRI Focal Point India, spoke about the core purpose of business and raised questions about sustainable devel-opment versus industrial develop-ment. Sustainable development is about manufacturing of goods and services which creates long term value for the society. Sustainable reporting refers to measure, man-age, and communicate the respon-sibility of companies to larger audi-ences. Reporting is essential for fixing accountability of the usage of natural capital, human and financial capital and governance.

Mr. S. Rath, Board Member, Oil India

(Left-Right) Ms. Aditi Haldar, Mr. Anand Kumar and Mr. S. Rath


Sustainability report is gaining importance all over the world. Finan-cial institutions are asking for sus-tainability report for businesses as a prerequisite for doing certain trans-actions. Sustainability report involves principle of materiality. This principle helps to understand the relevance of environmental and social issues to the businesses. She spoke about the scope of sustainability in transparent functioning of supply chain manage-ment. However there are certain important sustainability issues in oil and gas sector. She further said that sustainability reports should be used to evaluate present actions. This could facilitate in planning activities and operations of the businesses for better growth in the future. than L1 and conflict resolution. India

stands 179 in its position of doing business indicating that India is seen as not an investor friendly country.

He responded to Ms. Haldar’s ques-tion about “What is the core purpose of business” by quoting Gandhi, who said that “Business was an opportu-nity to serve people better” and that the first and foremost objective of any business is to sell. Unless you sell you can’t survive and in order to sustain selling one has to continu-ously innovate to sustain and over-come the hurdles of competitors.

In the past most of the construction work was undertaken by the govern-ment but with passage of time gov-ernment introduced the Public Pri-vate Partnership (PPP) model, which harnesses the strength of both the public and private companies. Mr. Kumar elaborated on the difficulties of doing business in India, empha-sizing on clarity of purpose, rules, specifications, conditions, bounda-ries and accountability, which hold key to transparency, ethical govern-ance and sustainable business. Mr. Kumar added that technology is a great enabler to bring about trans-parency, and that is the reason Gov-ernment has put great emphasis on digitizing the whole country.

In conclusion, he said that corpo-rate social responsibility is reflec-

Ms. Aditi Haldar, Director of GRI Focal Point India

Mr. Anand Kumar, Director, Petrotech

Mr. Anand Kumar, Director, Petro-tech, in his concluding remarks said that the primary objective of the con-sultation was to discuss the UNGC 10th principle against corruption and its importance in the Oil and Gas sector. Oil and gas is a vast sector, the intrinsic nature of this sector of being high on investment and long gestation makes it risky. Govern-ment has introduced certain for-ward looking policies but still there are certain constraints in the sector such as non-availability of national repository, lack of clarity in Produc-tion Sharing Contracts for explora-tion and production oil, ambiguity in taking decision based on Q1 rather

Ms. Shabnam Siddiqui, Project Director, GCNI

tion of company’s values, empathy and sense of responsibility towards the community and environment in which it operates. It is a means for integrating corporate activities with the society, which involves people, inculcate a sense of collective own-ership, sharing the company’s vision, participating in company’s mission and eliminating corruption, which certainly would add great value to the company as well as the society.

ConclusionMs. Shabnam Siddiqui, Project Director, GCNI, concluded the pro-ceedings of the day by saying that consultation has left a lot of ques-tions unanswered, questions that need to be deliberated in subsequent forums. Collectively the stakehold-ers need to come up with focused recommendations and chart out an action plan to bring about further transparency in Oil and Gas sector and strengthen ethical corporate governance in their sector.

Ms. Siddiqui acknowledged the con-tribution of a team of students (MBA – Oil and Gas Management) from University of Petroleum and Energy Studies (UPES) comprising of Minak-shi Zalke, G. Arun and R. Deepthi Krishnan for minute taking at the Consultation.


ABOUT GLOBAL COMPACT NETWORK INDIAThe UN Global Compact is a strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption. With over 12,000 corporate participants and other stakeholders from over 145 countries, it is the largest voluntary corporate responsibility initiative in the world.

The Global Compact Network India ranks among the top 3, out of the 102 local networks in the world, and has emerged as the largest corporate citizenship and social responsibility organization in the country with a pan Indian membership. With a membership of 183 corporate participants and organizations, the local India network, in the last 12 years of its functioning, has created a strong niche for itself. GCNI members represent pertinent sectors of the country such as private and public sector enterprises, civil society, and academia; collectively deliberating and developing a common development agenda on sustainable development.

ABOUT PETROTECHPetrotech is a registered body set up by the distinguished members from public, private, multinational and government in the Petroleum Sector to showcase the achievements and developments of the Oil & Gas Industry in India; develop co-operation in science and technology of hydrocarbon industry and share national and international experience and expertise in Oil & Gas business.

The Petrotech series of Conferences and Exhibitions which started in 1995 began a movement where all players of the oil and gas industry belonging to upstream, midstream and downstream sectors both from India and abroad met on a common platform to discuss the issues, concerns, strategies and technological advances in this field of hydrocarbons. These Conferences are held biannually and have gained reputation internationally and attract participation from India and overseas in large numbers.

ABOUT STRENGTHENING ETHICAL AND TRANSPARENT CORPORATE GOVERNANCE PROJECTGlobal Compact Network India's 'Strengthen Ethical and Transparent Corporate Governance Practices and Further Responsible Development Project' is supported by the UK Prosperity Fund India Programme. The Project is part of a wider goal of mainstreaming Anticorruption Collective Action in the development agenda of India. Indian businesses are already witnessing a rise in ethical and transparent governance practices. This Project further strengthens the trend by bringing together senior stakeholders, in business and bureaucracy, to take forward the collective agenda of transparency and responsible development forward. The Project facilitates constructive dialogue and bridges the gap in knowledge of anticorruption instruments and sector-specific challenges to transparent and sustainable development agenda in India.

STRENGTHENING ETHICAL CORPORATE GOVERNANCE IN OIL, GAS AND PETROCHEMICAL SECTOR IN INDIA & OFF-SHORE

Government & Nonprofit

Transcript of STRENGTHENING ETHICAL CORPORATE GOVERNANCE IN OIL, GAS AND PETROCHEMICAL SECTOR IN INDIA & OFF-SHORE