Financial Daily from THE HINDU group of publications
Tuesday, Sep 28, 2004
Columns - Random Walk
Losing sight of FACT
THE Fertilizers and Chemicals Travancore or FACT, as the Udyogamandal-based public sector fertiliser company is almost universally called, has a special place in the minds and hearts of Keralites. For long, it was the lone star in the barren industrial landscape of the State, offering a safe and secure haven for dozens of young engineers and workers.
As a central government undertaking, FACT was presumably immortal as a source of employment, especially with the blessings of New Delhi. And under the Chairmanship of the legendary M.K.K. Nair, FACT also grew into a strong and committed patron of the arts, promoting and encouraging Kerala's cultural artistes.
How times change. Today FACT is known neither for its culture nor for its corporate prowess. Instead, it is a sick company, on the brink of being referred to the Board for Industrial and Financial Reconstruction (BIFR), and kept alive only due to the largesse of Delhi. Without substantial financial concessions from both the Central and State Governments, FACT cannot hope to turn around.
Hit by the combined onslaught of a sharp drop in sales of fertilisers, a huge glut in the caprolactum market, and steep rise in the cost of all inputs, FACT has been haemorrhaging like a terminally ill patient. The company has accumulated losses totalling around Rs 285 crore, of which Rs 150 crore was made in the current fiscal.
With the accumulated loss amounting to more than half of its paid-up capital, FACT is in deep trouble, to put it mildly. The company needs between Rs 100 crore and Rs 150 crore for its immediate working capital needs alone.
There is, however, no dearth of advice on what to do. The unions of FACT's workers have been particularly energetic in announcing proposals. The FACT Employees' Congress, for instance, has suggested that the entire liability of Rs 609 crore of the company should be written off.
Its other suggestions include securing the necessary bank guarantees for a working capital of Rs 200 crore, implementation of the Tariff Commission, original recommendation on phosphatic fertilisers and getting fund of Rs 120 crore from the State's Annual Plan for modernising the company's plants.
The union has also asked the State Government to reduce land rent for FACT to the 2002 level, slash sales tax on petroleum products, and abolish the entry tax claimed by Kochi Refineries Ltd on petroleum products.
Not to be outdone, the FACT Employees' Association has its own set of prescriptions: leasing a small hydroelectric power generation facility for captive generation of power; speeding up the proposed liquefied natural gas (LNG) terminal; laying an 8-km rail link to the Udyogamandal site; reviving the idling urea plant; and laying a pipeline to carry carbon dioxide from the Udyogamandal ammonia plant to the Kochi division for urea production.
The FACT management, for its part, has submitted a restructuring proposal to the Centre, which seeks to write off the outstanding loan of Rs 497 crore and the accumulated interest; and a voluntary retirement scheme (VRS) to reduce employee strength from nearly 5,000 to 3,000. The VRS itself is expected to save Rs 75 crore, but at a huge cost of Rs 100 crore, which the Centre would have to fund.
Apparently, not all these pieces of advice have been ignored, as the subsequent visits and statements by both the Minister of State for Chemicals and Fertilisers, Mr Rehman Khan, and the Union Fertiliser Minister, Mr Ram Vilas Paswan, make clear.
They have served to lift the morale of both the management and workers of FACT, particularly through the announcement of a Rs 700 crore revival package for the company.
And yet, given the history of the rise and fall of FACT, even as the good doctors continue to examine the patient and prescribe medicines for recovery, they should perhaps practise some self-diagnosis. Often the cancer lies within.
The writer can be contacted at email@example.com
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