The present crisis began in 1998, and there seem to be several reasons for it.

How a profit making PSU has turned into a crisis hit one The story of FACT
news FACT crisis Wednesday, July 19, 2017 - 19:31

In 2014, after a much-hyped visit by Union Minister for Chemicals and Fertilisers Ananth Kumar, the central government extended a loan of Rs 1000 crore to Fertilisers and Chemicals Travancore Limited (FACT), an ailing PSU based out of Kochi in Kerala.

Though the Board for Reconstruction of Public Sector Enterprises (BRPSE) had approved a Rs 991 crore revival package for FACT a few years ago, the UPA government never gave the final clearance.

Therefore when the Modi government came to power, they had proudly declared that one of their first decisions was to revive a PSU in a state governed by the Congress. (Oommen Chandy was the CM of Kerala in 2014).

But in spite of the central government’s intervention, the numbers have not improved drastically for the company that has been a lifeline for farmers in the region for many decades.

Though the Centre has agreed to relax the terms of loan repayment, it seems that would not be enough to revive FACT. In 2015, FACT incurred a loss of 399 crores, and in 2016, the losses incurred were at Rs 452 crores.

Now, Kerala Chief Minister Pinarayi Vijayan has stepped in and has announced that the state government was interested in taking over FACT, as the Centre’s interest in reviving the PSU was dwindling. But will that save the ailing PSU?

FACT-sheet

FACT, with its headquarters and plants based out of Ambalamedu in Kochi, was formed in 1943, ostensibly India’s first large scale fertilizer unit. The factory came up on the banks of the Periyar river as the brainchild of CP Ramaswamy Aiyar, the Travancore administrator. As the area was struck by famine and severe shortage in food production, FACT was supposed to bridge the gap and bring employment for the people.

The first democratically elected government of Kerala took over FACT in 1960. Later on November 21, 1962 the government of India became the major shareholder of FACT - 98% of the shares of the PSU are with union government.

What keeps the company afloat is the demand for its mixed fertilizer brand called Factamfos. In 2016, FACT produced 5.2 lakh tonnes of the fertilizer.

But despite this, the company is now running into losses.

What’s ailing FACT?

The present crisis began in 1998, says N Prabhakaran, Public Relations Manager FACT.

“Till 1997, FACT was running on profit. There was a time we used to import ammonia from gulf countries," he adds.

Once listed among the profit making Public Sector Undertakings, over the years, FACT has become mired in debts, corruption and red tape.

However, insiders insist that some of the main reasons for FACT’s losses are the discrimination in the supply price of natural gas by Petronet LNG Limited, mismanagement, and loan liabilities.

High cost of LNG

For the last two decades, Petronet LNG, working under the government of India, has been supplying Liquefied Natural Gas to FACT for $19-$21 per unit, however, the company charges north Indian fertiliser manufacturing firms much less than this.

Earlier, FACT was functioning on the Naphtha process, and switched to LNG as a strategic move.

“FACT's functioning was based on the Naphtha process. Naphtha was the raw material mainly used for the production of ammonia, and the price of Naphtha depends on the price of petroleum products. Using Naphtha in fertiliser production had caused loss in certain years due its price fluctuation," a source tells TNM.

FACT opted to buy LNG as it costs less than Naphtha. But the switch to LNG did not come as a relief for FACT.

"When LNG was transported to Kerala, the price remained high. Petronet cites the cost of shipment as a reason for the high price in supplying to Kerala. There is also a difference in their policy when it comes to different states,” the source adds.

"The price of natural gas supplied to FACT is five times what the fertilizer manufacturing firms in north India pay,” says N Prabhakaran. 

Changing policies

FACT hit its high in the late 80s and early 90s. "There were years when the turnover was more than Rs 3000 crore. But over the past two or three years, there has been a substantial loss," a former officer told TNM.

"Whenever there is change in the policy of the union government, that has had also affected the production, and the turnover of the firm,” he adds.  

One such policy was the lifting of the fertiliser subsidy by the union government.

In the years when profit was fluctuating for the PSU, the management resorted to providing subsidies to find a balance. But the lifting of the subsidies meant that the losses started accumulating.

“The accumulated loss in 2016 was Rs 450 crore. There is also an accumulated liability over the years since its inspection," the officer says.

Mismanagement blues

Some also blame mismanagement for causing the losses for FACT. They say that those at the top, in recent years, have lacked management skills.

One such example that is frequently quoted is the removal of Jaiveer Srivastava as the Chairman and Managing Director in November 2016, owing to corruption charges. The board meeting that removed Jaiveer had also decided to take disciplinary action against four other senior officials.

"The officials, including the CMD, had lacked managements skills or the genuine passion to rescue the crisis hit firm," the former officer adds.

The ammonia plant

Another reason for the decline of FACT is said to be the liabilities from an ammonia plant that was commissioned in 1997.

Prabhakaran says that the setting up of the ammonia plant by investing Rs 1000 crore, by borrowing money from banks, has added to the liabilities of FACT. Local protest to shut down plant with the fear that it would leak and cause a tragedy similar to Bhopal gas leak tragedy had hindered its functioning in the initial years. Though the Supreme Court later had issued a verdict in favour of FACT the ammonia plant has not been utilised to its fullest capacity yet.

With the liability for the ammonium plant the loan liability rose to Rs 1800 crore.

Who will save FACT?

When asked was there no government intervention to bring down the price of LNG, Prabhakaran says that while attempts have been made a few times, none of them have actually worked.

“Not that FACT can’t be rescued. If the raw material is available for low price, we can tide over the crisis in the coming years,” Prabhakaran says.

 

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