Contemporary issues related to human development , regional and global.

Month: February, 2015

Colloquium on Kerala power sector: recipe for a culture change

Colloquium on Kerala power sector:
recipe for a culture change

1. Introductory: The colloquium held on 16th October 2014 at Anugraha Hotel, Vyttila was a joint initiative of individuals and organizations, who believed that KSEB is facing a crisis situation today, like many of its counter parts elsewhere in the country. During the sixth and seventh five year plans, KSEB could put to use nearly a third of the hydro-electric potential of Kerala and developed substantial capabilities in the design and construction of hydroelectric power stations as well as the T&D network needed for a fairly efficient state power grid. The State had also built up, during this period, substantial capabilities not only in the design and building of reservoirs, dams, tunnels, penstocks and other auxiliary equipment but also in the manufacture of electrical equipment as well as complex T&D systems.

2. Decline from mid-eighties: By the early eighties Kerala was exporting not only the cheap electricity generated in its hydro plants to the neighboring states but also a host of electrical engineering equipment like transformers, transmission lines and switch gear. However, after the Silent valley controversy, capacity addition by KSEB was only marginal and even this was mostly thermal based. As on now bulk of the electricity sold by KSEB is imported from outside. This prolonged dependency on purchased electricity, coupled with the uncertainties created at the national level by the structural reforms of nineties and the new Electricity Act 2003 have destabilized KSEB, financially as well as organizationally.
3. Present situation: Faulty HRD and HRM policies have led to serious shortages of trained and experienced cadres to manage key positions in this public utility, especially at the top. Computerization programs including ERP at various levels could not take off or was abandoned half-way through, due to lack of understanding or seriousness at the director board level. Delays as well as non-execution of generation projects, hydro as well as fossil fuel plants, are the result of lack of experienced manpower at the top, familiar with power development projects, thermal as well as hydro. There is an urgent need for capacity building and cadre development in almost all disciplines of power systems development and management: engineering design, technology, project planning, finance and general management as pointed out by many. Employees are well organized, disciplined and prepared to accept quality leadership. There is the need for a total culture change in the organization, from top to bottom.

4. Situation at the national level: A World Bank study of June 2014 has virtually admitted the near-total failure of power sector reforms initiated in early nineties and the new electricity act, in meeting even their own declared objectives: Debts of electricity utilities have ballooned to Rs. 3.5 Trillion or five percent of GDP by 2011, the target of full electrification by 2011 was miserably missed with some 300 million households remaining non-electrified, and the objective of an integrated all India power grid remain a pipe-dream despite massive investments in T&D gear.

5. World Bank View on KSEB: Surprisingly, the above said report has identified KSEB as the best performing power utility in the country on several counts, even though under pressure from employees, it did not to trifurcate itself into separate generation, transmission distribution utilities. The box item on KSEB in this report had concluded: “since 2011 its finances have been constrained due to the states declining hydro generation, forcing the utility to purchase power from external sources and draw down surpluses earned in earlier years. Inadequate planning for power procurement to address demand growth has exacerbated the change in fortune of the utility, which remains well managed is but is now suffering from external shocks.”

6. Reorganizing Kerala’s power sector: Any major course correction of the current reform process at the national level is unlikely in the immediate future under the present circumstances, though there is every indication that the country will be under compulsion to limp back to the old federal system with more autonomy for the state governments, and CEA playing once again the key role of a federal authority. Taking into account the observations in the present WB study referred to above, and based on the findings of the Colloquium, it will be prudent for Kerala Government to launch a program for re-organizing KSEB on the following lines,

(a) KSEB will be reconstituted as a holding company, one hundred percent shares owned by GOK as on now but with an expanded board of directors giving equal representation for government, employees and consumers as in the French Electricity Board (EDF), and as recommended by the High Power Committee appointed by the previous Government. KSEB could function as the TRASNCO of Kerala as spelt out in the Electricity Bill, dealing with the T&D responsibilities directly and leaving generation responsibilities to two specialist joint venture subsidiaries, one for thermal generation and the other for hydro generation. KSEB will retain majority shares in both the subsidiaries.

(b) KSEB employees who work for the T&D functions that constitute around 85 percent of the present work force will continue as direct employees of the holding company: Participation of the representatives of employees and customers at the top level management of KSEB, will improve its accountability and sense of responsibility as a public utility, and also help in a big way to launch and implement system improvement programs in a far more meaningful and effective manner. The holding company should be held responsible for addressing the environmental concerns with the help the two subsidiaries, specializing in Hydro and Thermal generation.

(c) A Kerala Hydro Power Corporation (KHPC) may be floated as joint venture with National Hydro Power Corporation (NHPC) for the operation and modernization of existing hydro plants and for taking up new hydro projects within the state, including the augmentation and modernization of the existing plants. Projects of less than 500 KW or so can be left to ANERT for non-grid power development. As an organization specializing in hydro generation, KHPC will be useful in augmenting specialist manpower needed for the design and operation of hydro power plants and also for addressing the environmental concerns in a more effective manner.

(d) A Kerala Thermal Power Corporation (KTPC) may be setup as joint venture with National Thermal Power Corporation (NTPC) with similar objectives as for Hydro. Even NTPC Kayamkulam could be brought under the purview of KTPC. As an organization specializing in thermal generation, KTPC will help in augmenting specialist manpower needed for design and operation of thermal power plants and also in addressing environmental concerns related to thermal power generation in a more effective manner

(e) KSEB will buy power from its two subsidiaries, KHPC and KTPC, on a cost plus basis. NTPC and NHPC being Navaratna companies and technology generators for the country will be in a position to help the capacity buildup of these state level subsidiaries rather quickly and effectively. It will facilitate a major culture change in Kerala’s power sector.

(f) Activities of ANERT may be brought under a commercial undertaking jointly owned by Central and State Governments to continue the promotional and R&D work on renewable energy and distributed generation program for remote and rural communities in conformity with the policies of the ministry for renewable energy and, supplementing the power development programs of KSEB

7. Summing up: The above re-construction plan of the states electricity sector will conform to the state level objectives of Electricity Act 2003 and will be in harmony with the aspirations, wishes and preferences of KSEB employees. The proposed joint ventures will help Kerala to develop quickly the much needed specialist manpower, expertise and technology needed for the healthy development of its power sector.

8. The next step: CEA may be assigned the lead responsibility for finalizing this conceptual plan and requested to prepare detailed operational plans for implementing it.

9. Colloquium participants: PC Syriac, K Vijayachandran, MP Sukumaran Nair, P Parameswaran, KR Unnithan, KS Damodaran Nampoothiri, Philip P Paulose, S Balakrishna Menon, G. Sudhadevi, G Balachandran, Anilkumar P.Kv, S Jayathilakan, MT Varghese, AR Unnikrishnan, CV Usha, PR Shaji, KK James, EV Mohandas, Malippuram Khalid, G. Ram Mohan Nair, AV Narayanan Nair, CK Raghavan, MV Varghese, CK Joseph, PD Aruna, K Asokan, MK Parameswaran Nair, EN Gopinathan Nair, KK Karuppankutty, PH Abdul Rasheed, MA Abdulkhader, Roy Xavior T, VV Satyarajan, Sivarajan, John Darrel, TK Moidu, AR Satheesh, George Thomas, Robin Sebastian, CV Subramanian


K Vijayachandran

[This article was written seven years ago on 11-02-2008 and then published in the Passline. Problems continued with FACT and there was yet another phase of SAVE FACT campaign, relay fast and satyagraha at the FACT gate that lasted several months. Thanks to the initiatives by Prime Minister Modi the fertiliser is restarting today with lower priced LNG. The real problem is that GOI and its Fertiliser ministry which hold the majority shares of FACT have no interest in this CPSU. And, this is reflected in the composition of its BOD and the indifferent management culture it has inherited from the past. The only possible salvation route for FACT is takeover by Kerala Government and manage it with employee participation]

There is an Udyogamandal Post Office with PIN Code 683 501, in Ernakulam district: a very familiar Pin Code for a couple of generations of educated unemployed in Kerala. There is no revenue office or even a Panchayat ward bearing that name. Udyog means industry in Hindi, and not office job as implied by udyogam in country Malayalam. Fertilisers And Chemicals Travancore Ltd (FACT), incorporated in 1944 was the first modern industry promoted in this locality and the first fertiliser factory in the subcontinent. Government of India fully took over this company in 1963, as part of its national program for fertiliser production in support of the Green Revolution. In fact, it had moved into this industrial development belt on the banks of River Periyar, as early as in 1955 with its Hindustan Insecticides Ltd. With several large, medium and small industrial units in public and private sector flocking into the locality, Udyogamandal was a daring and pioneering concept of what we call today as, Industrial Estates, Parks, Clusters, Smart Cities or SEZ.

The first plant of FACT had a capacity of 50,000 TPA of Ammonium Sulphate. Firewood from Perumbavur forests reached the plant as feedstock for ammonia synthesis, by river Periyar. Gypsum from the mines at Trichy served as the source of sulphur for the sulphate fertiliser. With the commissioning of an Ammonium Phosphate capacity of 40,000 TPA and Sulphuric Acid capacity of 75 TPD, FACT emerged as a leading chemical manufacturing company in South Asia. It built up an extensive marketing network in South India, and by the time GOI took it over, FACT had experimented with a variety of fertiliser technologies, not only in manufacture but also in crop applications. FACT Engineering and Design Organisation (FEDO) was set up, based on this vast technological experience. Its R&D oriented marketing organisation along with FEDO made substantial contributions to the development of fertiliser industry in the country.

In planning and implementing successive expansion-diversification plans of FACT, FEDO had played a major role. Plants in Udyogamandal Division, Cochin Division as well as Petrochemical Division were engineered by FEDO, using basic technologies imported from a variety of sources. FEDO had worked in tandem with the Planning & Development (P&D) organisation of Fertiliser Corporation of India, in the design and development of several fertiliser projects in the country. With more than four decades of experience, FEDO is a leading Engineering consultancy today, involved in the supply of project design, engineering & implementation and plant operation and maintenance services, mainly to the fertilizer, petrochemical and oil & gas industries.

FACT Engineering Works (FEW) was developed as an in-house construction organisation. Supported by FEDO, it has taken up major construction projects through out the country. FEDO and FEW together are well equipped for large Engineering Project Construction (EPC) Contracts, not only for fertiliser and petrochemical industries but also for a wide variety of infrastructure projects, including power plants, water supply, effluent disposal and environmental projects on a turnkey basis. These service activities engaging more than one thousand people were generating handsome surpluses all these years. However, they are not able to withstand the prolonged uncertainties with regard to the profitability of its main products.

As soon as Caprolactam plant got commissioned, hikes in naphtha prices and lowering of import duties had created a crisis. The only competitor for caprolactum, the Gujarat State Fertiliser Corporation (GSFC), had the big advantage of having local LNG as feedstock. Proposals for an LNG terminal at Kochi continues to be debated more than ten years. Contrary to the high profit expectations of the Petrochemical Division, Caprolactum unit was operating with low profit margins and the recent steep price increase for Sulphur has pushed it into red. Policy disputes on fertiliser subsidy among the departments of agriculture, fertiliser, petroleum and finance continue unabated: While the very principle of fertiliser subsidy is being questioned by the reformers, there is no room for even discussing the efficacy of the good old retention price formula. Problems keep surfacing, one after the other and the Department of Fertilisers and Chemicals, who owns FACT, has no long term solutions to offer. Every time its bureaucrats come up with half-baked ideas which loses their relevance as soon as they are discussed in public. It was takeover of FACT by IFCO or KRIBCO, six years ago. Then a new CMD was appointed, who prepared and submitted an elaborate restructuring proposal in 2003.

According to him, the reasons for the losses were the changed fertiliser policy, increase in other raw materials, energy, transportation costs, high interest burden on loans taken for ammonia plant, unwieldy manpower strength, glut in caprolactum markets and inadequate efforts towards expansion and diversification. He had submitted a restructuring proposal to the Centre seeking writing of outstanding loan of Rs 497 crore (ammonia plant Rs 378 crore plus Rs 110 crore) and hitherto accumulated interest burden; and a VRS package to reduce employee strength to 3,000 from around 5,000. According to this plan, VRS implementation would eliminate present cash loss, as there could be a saving of Rs 75 crore. However, the cost of VRS would come to Rs 100 crore, which would have to be funded by the Centre as part of restructuring. Writing off of pending loan amount of Rs 497 crore and the due interest of Rs 70 crore would result in an annual saving of Rs 140 crore as interest and depreciation and it would improve net worth, he said. Such a step would help in break-even operations. (Hindu 06.10.2003).

VRS was implemented with vigour, and manpower strength is less than 3000 today, but the real problems were never touched up on. Most of the plants in all the three divisions are virtually now closed down for the past five months, because of high sulphur prices: Board of Directors of FACT had ordered indefinite closure of the units based on the finding that monthly losses could be reduced to Rs.19 Crores from Rs.20 Crore per month, if the plant was kept idle! At least the CEO of FACT, the ultimate custodian of the company and its assets should have known that, the plant and machinery of a chemical plant will corrode away, if kept idle for a couple of months. No dissenting voice was heard in defending the interests of the State and the other minority shareholders of FACT. Possibly, even the CMD was helpless under specific instructions from the ministry. The situation should not go unchallenged by the State Government.

FACT with its expertise and experienced manpower could do a great many things, using the vast resources at its command. Value of the intellectual property of FACT as well as the value of the prestige and goodwill enjoyed by it must be quite substantial, but difficult to estimate. Then there are the plant and machinery, factory and office buildings, institutional buildings, schools and clubs, hospitals and other social infrastructure, townships with roads, power, water supply and sewerage systems, 900 acres of well developed land at Udyogamandal and 2000 acres at Ambalamukal that includes 200 acres of backwaters, which are far more easy to value. The quantity of gypsum stored at the two plants is around five million tons and its current market value is estimated at around two billion Rupees. With that type of assets and resources at its command why should FACT consider itself to be sick? How could a State Government that runs after all sorts of promoters, organisations and concepts, be indifferent to the gross neglect of these huge resources by Central Government? Employees had rightly organised themselves into a Save FACT Forum some six years ago and this writer was the convenor of its technical committee headed by the late Padma Sree Paul Pothan. Urgent intervention by the State Government was recommended by us, taking into account the resources and opportunities represented by FACT.

It was UDF rule during those days, and now it is LDF Ministry that swears by a different set of convictions. However, there is no noticeable change in the attitude of Kerala Government which is keeping a studied silence from a distance. Save FACT Forum has organised a relay hunger strike in front of the Udyogamandal factory: It was 133rd day, when this writer visited the Satyagraha Pandal on 7th February. The Rs.200 Crore urgent cash relief recommended by the committee of secretaries, some three months ago was not released, because of procedural hurdles. Honourable Minster for Fertilizers and Chemicals has now stated that, he had plans to merge FACT with some profit making unit. This only shows utter lack of seriousness with which, the political leadership and the bureaucracy at the Centre, look at the problems of FACT which is much much more than a usual sick public enterprise as far as Kerala is concerned.

It is high time to think of a totally new approach for making the full use of FACT and its material and intellectual resources. From the long years of neglect, it is clear that, Centre has no interest in utilising these resources: State Government should come forward to take over FACT, reorganise, develop and manage it in the best interests of the State. The marketing network of FACT in the Southern states could take to trading not only chemical fertilisers, but also organic manure and pesticides apart from the marketing and servicing of farm machinery. FEDO could be further expanded and diversified into agro-processing and related areas in support of farm modernisation programs within and outside Kerala: Even joint ventures could be floated in association with KRL, ONGC, GAIL etc.

Plant and machinery as well as the infrastructure may be judicially used for a more profitable product mix, in case Central Government moves away from the policy of subsidised fertilisers. Land and other infrastructure could be used for industrial development, in association with the promotional agencies of State Government. In its capacity as a major business organisation in Udyogamandal and its neighbourhood, FACT could play a lead role to organise social infrastructure such as education, health and culture. Kerala Government could do all these, if it has a political will: It will be a much easier task, compared to CIAL, taking into account the professional expertise that could be mobilised by Government of Kerala, in support of a vision or dream project.

As a fertiliser specific example for such a dream project is Gujarat State Fertiliser Corporation (GSFC) incorporated in 1963 with a product mix very similar to that of FACT: It is a public enterprise with 37.84 percent of its shares (Rs.79.7 Crores) are held by its promoting state agency Gujaarat State Investments Ltd., 40.12 percent by public institutions or mutual funds and balance 22.04 percent by individuals. GSFC, with an annual turnover of around Rs.3500 Crore, is managed by an eight member board of professionals, mostly drawn from the IAS Cadre: Manjula Subramaniam IAS, Chief Secretary of Gujarat is the Chairperson and PK Taneja IAS (1984 batch) is the Managing Director. Three more senior IAS officers as part time directors: Avinish Kumar, Additional Chief Secretary Agriculture and Cooperation (1972 batch), Vijaya Laxmi Joshi, Principal Secretary, Energy and Petrochemicals , CMD Gujarat Urja Vikas Nigam Ltd and MD Gujarat Power Corporation Ltd (1980 batch), and Vijay Kapoor IAS (retired). The remaining three part time directors are: DC Anjaria (Financial Consultant), Vasant P Gandhi (Agri-business Consultant) and Ajay N Shah (Financial Policy Expert). It may be noted that Gujarat has a fairly large number of state public sector enterprises in key sectors and they are mostly managed by boards consisting of IAS officers and other professionals. True, administrative culture in Kerala is different, senior IAS officers generally avoid field assignments and seek asylum in Government Secretariat, as early as possible.

We may design a board structure that best suits FACT, taking into account our own social and political environment, and even plan for employees’ participation in management, in line with the principles of industrial democracy, widely practiced in Europe. Example of GSFC is quoted here mainly to point out that there is a Gujarat model to learn from, if Kerala decides to liberate FACT from the Central Government and its sick Ministry for Fertilizers and Chemicals.


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