The new chairman and managing director of Fertilisers and Chemicals Travancore Limited (FACT), Jaiveer Srivastava, recently convened a press conference here at the Udyogamandal Club to unveil an ambitious plan — Vision 2020 — to turn around the fertilizer company.
The plan provides a broad framework to revive FACT, which has fallen on bad days. Even in its present condition, having run up substantial losses during 2012-13, the company is the source of a lot of nostalgia in the State. “Everybody here knows a lot about the company and the people of Kerala love it. They are concerned too,” Mr. Srivastava said, hinting at the long-running romance between FACT and Keralites.
It is a story that goes back a long time and is many-layered. FACT was incorporated in September 1943 as the brainchild of C.P. Ramaswami Iyer. It has since made huge contributions not only to the State’s economy, but also to the agrarian economy of south India.
According to available figures, FACT sold 8.34 lakh tonnes of fertilizers during 2011-12. Fertilizer sales touched a record 9.32 lakh tonnes during the previous year. These figures show that FACT has been the mainstay of farmers in Kerala, Tamil Nadu, Karnataka, Andhra Pradesh and Puducherry.
Factamfos, a mixed fertilizer brand from FACT, is the company’s sales driver and is in great demand among farmers, who seek protection from low quality fertilizer mixes from unscrupulous players. The company sold 6.22 lakh tonnes of Factamfos in 2011-12 and 6.44 lakh tonnes of the product during 2010-11.
Some of the old-timers recall FACT as an institution that also generously fostered cultural and sports activities.
However, over the last decade it was in the news mostly for the losses it suffered and its financial troubles, having once even come back from the Board for Reconstruction of Public Sector Companies regime.
Fall in profit
Between 2001-02 and 2011-12, the fertilizer company’s fortunes had a roller coaster ride, thanks to issues that are typical to cash-strapped, big public sector companies.
A system of management that does not facilitate timely decisions on crucial issues such as purchase of raw material; difficulties associated with the payment of fertilizer subsidies; use of a costly and often price-sensitive feedstock such as naphtha, and the lack of full-time heads for protracted periods have hampered the company’s progress. For example, the company did not have a full-time head between November 2009 and April 2013. It was a period during which no significant decision could be taken, said a senior official of the company, who has since retired.
The results have been predictable. In 2001-02 the company made a profit of Rs.57 crore. A decade later, the profit level fell to Rs.20 crore in 2011-12. The company also ran up a loss of nearly Rs.200 crore during 2002-03, but did a major turnaround and made a profit of Rs.235 crore two years later.
George Sleeba, former managing director of FACT, said one of the features that went against the company was the averaging system of providing subsidy for complex fertilizer components.
FACT, having significantly higher cost of production, did not stand to gain from the system that paid subsidy on the basis of the average cost of production of a particular fertilizer.
A submission in 2011 before the Union government by Save FACT Action Committee, a combine of trade unions of officers and workers, highlighted the major problems facing the company. The key to pulling FACT out of its troubles lies in providing sufficient working capital and adequate naphtha conversion cost, and fixing LNG price at affordable levels at the earliest.
Mr. Srivastava is aware of the swing in the company’s annual results and has drawn up what appears to be a practical and hands-on plan to pull the company permanently out of troubles.
In doing so, he has laid emphasis not only on the company’s core area of activity but also on strengthening subsidiaries FACT Design and Engineering Organisation (Fedo) and FACT Engineering Works (Few), which, he felt, could be turned into profit centres.
Mr. Srivastava eyes a turnover of Rs.7,000 crore and a profit after tax of Rs.300 crore by 2020, achievable by raising fertilizer production to 20 lakh tonnes and fertilizer trading to 10 lakh tonnes.
Complex fertilizer production will be raised by 1,000 tonnes-a-day at the Cochin division. A 2,800 tonnes-a-day ammonia plant and and 3,500 tonnes-a-day urea plant are on the anvil at the same premises.
By unleashing its land holdings, the company should be able to draw sufficient investment to realise the goals over short and long terms, said Mr. Srivastava.
Switch to LNG
Switching from naphtha to LNG was heralded as the key to putting FACT into the next round of growth. However, Mr. Srivatsava said the price of landed LNG was projected around $14.5, against the previously expected $4 to 5 per MMBTU. Earlier expectations were that LNG would be substantially cheaper than the current feedstock naphtha. Mr. Srivastava said FACT would appeal for naphtha subsidy up to 2014 so that any eventuality could be met.
At the same time, he said FACT had virtually completed its conversion work for switching fuel and it would be ready to use LNG by June. With the Gas Authority of India pipeline already in place, it is only a matter of time before LNG arrives at FACT production units.
Before that, will come a gas purchase agreement between GAIL and FACT, which requires roughly 0.32 million tonnes of gas a year, making it the largest single customer for Petronet LNG Limited. FACT’s future will depend on the price of gas and how soon the gas purchase agreement comes.