Jasleen Kaur | June 7, 2014
Oil and Natural Gas Corporation (ONGC) Limited, the biggest profit-making state-owned company, will be among the top Indian firms to contribute and spend on CSR now that the Companies Act has been implemented. The ONGC says it would have a budget of approximately '500 crore for the initiative. Jasleen Kaur checks the details with KS Jamestin, director of human resources who also heads ONGC's CSR division. Edited excerpts:
What is your view on the norm of spending two percent of profits on CSR activities, as per the new law?
First, it is not mandatory, but voluntary, which we are expected to do as a good governance practice. And if for some reason we are not able to spend, we need to give a disclosure for the same.
For companies like ONGC, two percent of profit after tax (PAT) is a huge amount. And you have to spend it as per the public procurement policy, that is, by adhering to all norms of tendering, audit and vigilance. You are supposed to be accountable too. Is it easy to spend that kind of money?
The large projects that we are expected to spend on don’t come easy. The projects have to cross many filters to prove they are genuine and can create an impact. Many such projects thus do not qualify. I am sure none of these large profit-making companies will be able to spend the entire two percent due to practical problems. If they (rules) had said that the money could be given to the government, or to the prime minister’s relief fund, we would have been happy to do that.
So it has to be (done) either through a recognised agency or a trust established by the company. But a trust is only a kind of a comfort – the responsibility of spending (money earmarked for the initiative) rests only with the company.
Are you saying it is an unrealistic idea?
It has a good objective and it will be true for a level of spending for medium-sized companies – say, maybe up to '100 crore. But when you go to higher amounts there could be a problem. We do not necessarily have an army of people only for this work. Our primary responsibility is to find oil and gas, and related businesses. We cannot recruit 150 people just for this (CSR) job. This is in addition to what we are already doing. So there are these disconnects.
But it’s a good norm and if a (worthwhile) project comes our way, which need this kind of investment, we will be happy to fund it.
ONGC has not been spending the entire amount fixed for CSR. What are the hurdles you face?
The biggest challenge is to find the right project that can have the kind of impact we expect. For example, we have done a project with Alimco, an artificial limb manufacturing company, across the country. But they had manufacturing limitations and they couldn’t manufacture beyond a certain number. The impact and money are not correlated or proportionate. Sometimes a small amount can also make a huge impact.
We gave about '250 crore to the Rajiv Gandhi Institute of Petroleum, and '150 crore to a stadium in Uttarakhand. But then there are many people willing to build stadiums across the country. We have been trying to tell NGOs to come forward with projects for building toilets for girls in all municipal schools but no one is taking the initiative. We are willing to spend any amount of money on that. But NGOs have their particular arenas where they play, and they won’t go beyond that.
The other problem is that most NGOs do not think beyond a budget of '10-15 crore.
Our ability to go and search for projects is limited. If we do that we will become an NGO. (But) we look at agencies which bring good project to us carefully, and then fund it. The big budget project does not come (easily). Spending up to '150 crore is easy, resistance comes beyond that and spending money becomes an issue. But that does not mean we will not do it.
What is the scrutiny process you follow before selecting a project under CSR?
We follow two modes. In the ‘pull mode’ we go and identify projects based on some inputs and in the ‘push mode’ somebody brings the project to us.
A project first comes to the work-centre where it is scrutinised by the screening committee. The committee then recommends it further and it goes to the virtual corporate board. From there it comes to us. Here again there is a screening committee at the chief CSR level, which checks the pros and cons of the project and checks if it can create an impact.
We follow different empowerment norms. Any project which costs more than '1 crore goes to the executive committee and to the board. We have also constituted a board-level sub-committee which is required as per law. The chairman is an independent director of this panel and we have two or three directors to scrutinise projects.
At each level we ensure that all documentation work is done. Our team often visits the project sites. In many projects we insist that implementation is done through state agencies – like the district collector – which ensures that money will not go to wrong hands. And we do not give the payment altogether for a project. We follow the milestone payment mode.
Will ONGC’s perception toward CSR change with new rules?
I don’t think so. The new rules are more generic and whatever we are doing can be easily be covered under the new rules. The new rules are better than the earlier draft rules.
In the draft rules, the department of public enterprises (DPE) had allowed PSEs to carry forward unspent money to the next financial year. But the new rules do not allow that. Do you think it will be challenging for PSEs to spend the entire amount within a year?
Now, we are very clear that money will not go to anybody else if we don’t spend. Our only obligation is that we have to give the disclosure in the balance sheet. It’s a governance issue. The world may view it differently (and say that) we are not very proactive in spending money for CSR projects. But that’s a thing we should be prepared for.
Otherwise there is no compulsion that money will lapse. If there is a business compulsion – that our business priorities are more important than CSR – we will obviously address that (compulsion) first. Unless you have money how would you work on CSR?
The DPE has also proposed to form a company to manage CSR funds of all PSEs. How do you see that proposal?
I do not think it is a good idea because it will be an additional government body. It will not do any better.
Do you see CSR spending as an investment opportunity?
No. It cannot be an investment opportunity because it is not reflected in the rules. The rules prevent us from mixing regular work with this (CSR), though many companies are doing that. There are certain companies which see it as promotional opportunity.
(On this issue) I think the DPE will have to intervene and put some additional conditions for PSEs.
If, in the process of furthering the business, the company gets benefit what is harm in it? If we are building a plant in some remote area and we build roads, it would be beneficial to both the company and the other users. This should have been encouraged under CSR rules. Companies did this earlier but they hesitate now.
Should work done as part of CSR be audited to ensure effective implementation?
There are a lot of external checks and balances in a public limited company like ours; we also have internal audits. But one has to be careful in a private enterprise because there is a possibility that some of them may use it just to further their business interests. I do not think it is a bad idea if in the process of implementing CSR some benefit also comes out. For example, if a company puts up a project in a remote area it is in its business interest but in that process the community also gets benefited. As it brings employment opportunities, local infrastructure is created, so we have to think a little proactively.
Industries have sought tax benefit for spending on CSR activities. What is your opinion on that?
There are several things that could have been included in the rules. The dichotomy is that any amount you give to anybody for CSR, there is a service tax applied on that. But we are not getting any service in return; we are just giving the money to the community. The government is practically taking another 12 percent from the CSR fund as well. If that tax is exempted, even that money would go into CSR. We have been trying to get some clarity on service tax issue but there is no clarity as of yet.
Due to the difficult circumstances under which the money has to be spent on CSR, we wanted some relaxation on the usual method of public spending. Doing anything in a public environment is difficult. We have to bring out tender and we are susceptible to RTI, public enquiry, parliamentary committee (and so forth). So it is difficult to motivate people and sustain their motivation.
According to the Indian Institute of Corporate Affairs, an estimated '20,000 crore is expected to be spent on the social sector annually. Do you think it will make a huge impact?
I think that’s an arithmetic addition. It will not happen that way. A lot has been spent earlier also. Many companies have been spending without the rules (before the Act came into force) as well. Even at ONGC, we have had a policy called ‘socio-economic development programme’ and we were spending money under this before any CSR rules (were introduced). A lot of private companies also do that. It acts as a good will for the company.
The multinational companies which come here establish schools and make roads and hospitals because this is a necessity. Such things will happen. But you can’t count on that money – '20,000 crore is nothing when you compare it to the need of the country.
Will it create an extra burden on companies?
It would create an extra burden because all norms of compliance, spending and records have to be maintained. If you get one good NGO which can do all the work we will be very happy to deal with it. But unfortunately we do not find such agencies.
Do you think the government should play a role here and suggest some NGOs or agencies through which companies can spend money on CSR activities?
It will be a lot easier if they do that. Then we will only look at a proposal through companies registered with the government. But I don’t know how easy it will be for them. I have read recently that there is one NGO in the country for every 600 people.
What is your plan for the next five years? Which areas do you want to focus on?
We would like to further our work in the 10 areas mentioned in the rules. But the company is very passionate about things like skill development – not for the selfish purpose of employability in the company; we are able to attract enough regular employment of the company. The problem is when you want to establish infrastructure projects – like building refineries, petrochemical complexes, etc. – a huge workforce is required. We don’t get people with experience or skills in adequate number. That’s mainly because labourers are migrant.
Even when we find people they are not skilled and most of them learn on the job which increases the chance of accidents. We need to generate a pool of people in this country for the dream eight percent GDP growth. We need a workforce reasonably trained for such jobs. A lot of initiatives have been taken up by the government – like the national skill development forum – but not much is happening at the delivery stage.
We are willing to spend money in this area, particularly for oil fields.
The second concern is women’s welfare or empowerment-related issues. For that we need to make more schools, particularly for women, and create a more educated workforce so that they are not seen as a liability. There are several issues which we want to focus on – like healthcare; we are already building a huge hospital in Assam with a budget of around '500 crore. We have (earlier) built a hospital in Lakhimpur in Uttar Pradesh.
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