Both such practices are against the principle of corporate governance and natural justice in so far as the stockholders, stakeholders, tax-payers and consumers are concerned. The government assistance to these core sector industries is doled out of the tax-payers money for the ultimate benefit of the common man since the availability of energy concerns all.

Oil companies can always spend their money on exploration, production, transportation and distribution as they form part of their integrated business model. An oil company can utilize its surplus fund or borrow funds to lay costly pipelines, buy crude carriers or lease drilling rigs, offshore or on-shore. But, can the oil companies divert their shareholders' funds to such businesses as real-estate development and the retailing of biscuits, potato chips, condiments, rice, mustard oil, etc?

Few will disagree that such practices are unethical, if not totally illegal. Promoters of government-aided basic energy companies are most welcome to diversify into other areas of business provided they use their own private funds for the purpose. But, they should not be allowed to use profits and reserves of their energy companies as hedge funds to branch out into other businesses for private gains.

Unfortunately, this is happening in India's vital energy sector with private promoters using the guaranteed return on their capital investment with impunity to branch out into other businesses right under the nose of the government and the regulatory authorities.

Take for instance, the RPG group's CESC Limited, Reliance Power (now RNRL) and RIL. The corporate name, Reliance Natural Resources Limited, itself is vague and all pervasive in the business field of natural resources such as air, water, coal and other minerals. The mega company has been created through a series of mergers and acquisitions, beginning with Bombay Suburban Electric Supply Company (BSES) Limited. It can diversify into businesses using the corporate fund, which comes basically from the electricity business. Reliance Industries (RIL), once the parent company, too is built on the same mould.

It is not cash alone which is being siphoned out. The “surplus” urban land at the disposal of some of the companies is coming handy to create wealth for the promoters and not for the energy companies to which they actually belong. The promoters are using the routes of outright sale, acquisition, merger, demerger, stake sale within and outside the group as part of financial engineering for their private or group benefit and not in the interest of the utility companies, which are seen as cash cows.

CESC's acquisition of Spencers, a Chennai-based fund-starved retail chain, to make the latter a big vibrant national retail giant is a glaring example of a growing trend of fund diversion by promoters in the utility sector. Surprisingly, the act went without any opposition from the regulators and even from West Bengal's Left Front government. CESC is one of West Bengal's biggest power producer and distributors. The company was recently allowed to raise its power tariff to the chagrin of millions of its domestic consumers and industries in and around Kolkata to make more profit.

Spencers, now a wholly-owned subsidiary of CESC, is reportedly considering a 20 per cent stake sale to raise large funds for its expansion across the country. The stake sale is not to benefit CESC or its consumers and minority shareholders. The money will go to Spencers. Indirectly, Spencer is selling CESC's stake in the company without bringing any benefit to the holding company, its consumers and shareholders.

CESC had earlier diverted funds to promote a spinning mill. For reasons best known to the regulatory authorities and the state government, the original owner of CESC's power license, and agencies such as the Central Electricity Authority, Power Finance Corporation, tariff regulatory authorities have chosen to play the role of a silent spectator. CESC's abandoned Mulajore power plant on the outskirts of Kolkata along the river Hooghly and closed godown at Park Circus in the heart of the city have created huge surplus lands in prime locations worth several hundreds of crores of rupees.

Like CESC, BSES and Tata Power too have prize urban properties under their belt. There is no harm if the promoters want to unlock the value associated with these real estates provided the same is reinvested in power business to reduce the pressure on the funds of the power utility to carry out modernization and expansion programmes. It should be remembered that such assets belong to the shareholders and consumers as these companies are built with active financial support from the government through the tax-payers' funds.

However, the consumers and the shareholders seem to be destined to remain at the mercy of the energy companies as long as they have their ways with the government and regulatory authorities to siphon out funds from the utilities to deploy in less-regulated non-core businesses. (IPA Service)