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The never ending debate

Dec 3, 2008

And the argument continues...
At last count, crude oil, the world's most extensively tracked commodity was trading at well below US$ 50 per barrel. A massive decline from the all time highs of around US$ 150 per barrel reached barely a few months back. At its peak, it enabled Exxon Mobil, the world's largest private sector oil producer to report a record US$ 15 bn in quarterly profits. And the company was not alone. In fact, the enormity of the cash stockpile that players in unregulated markets generated also led to a huge outcry among oil users. But not anymore!

Crude oil is off a mind boggling US$ 100 per barrel and the debate whether it will retrace peak levels is getting stronger by the day. Opponents of the peak price theory point to the weird inverted supply curve that the oil cartel OPEC is confronted with. They argue that no matter how much OPEC forces its members to cut back production, their budgets have been tied to a much higher price of oil and hence, they would be forced to sell more in order to make up for the decline in price. Hence, this would ensure that supply increases or at best remains constant in a world of slumping demand.

On the other hand, supporters of a structural upswing in crude oil prices point towards the rapid decline in the oil fields of the world. And hence, with economies around the globe likely to come out of slowdown in a few quarters, oil could be back in the vicinity of US$ 150 per barrel or may be even more. An interesting debate indeed! However, if there is agreement on one thing, it is on the fact that record profitability levels could be a thing of the past on account of the significantly higher extraction costs going forward.

Now, ESOPs for PSU employees
It looks like the government is finally waking up from its deep slumber. Faced with an intense competition for talent, it has directed all listed public sector undertakings to devise plans for ESOPs (Employee Stock Option Plans) in order to prevent poaching by their private sector counterparts and also reward top performers.

Once considered to be the employers of choice by the country's best engineers and finance professionals, the PSUs have lost their sheen in recent times on account of the emergence of private sector companies. These companies managed to lure talented employees from the PSUs, doling out pay packages and incentives that were very difficult for their PSU counterparts to match.

Thus, if the ESOP plans are any indication, the reality of the changed dynamics seems to have finally dawned upon the Indian government. As per a leading business daily, the PSUs will have to give 10% to 25% of the performance related pay as ESOPs. While the proposed performance pay scheme could commence from the financial year FY08 itself, ESOPs are likely to take some more time till each PSU finalises its respective scheme. The wealth creation that has happened in the Indian equity markets over the last few years has also seen a significant jump in the value of listed PSUs. With a lot more still to come, PSU employees would definitely be able to add to their wealth through the ESOPs that would be allotted to them.

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