Can Chandy revive moribund CPSE FACT in Kerala? Seeks PM’s intervention

Kerala CM Chandy 

ARE the political leaders really serious about reviving the sick PSUs? Can these loss making or say closed PSUs pin hope on them? If you thing in the negative think again. Yes some of these political leaders do make effort to take the sick units back on track. At least they try to revive them.

Thus, Kerala chief minister Oommen Chandy has recently...

written to Prime Minister Manmohan Singh, seeking his intervention to save the Fertilisers and Chemicals Travancore Limited (FACT), the largest central public sector in the state as it is reeling under severe financial crisis. FACT has business interests in manufacturing and marketing of fertilizers, caprolactam, engineering consultancy and fabrication of equipment.
Showing sagacity, the Kerala chief minister asked Manmohan Singh to intervene to clear the comprehensive financial relief package worth Rs 991 crore that has already been approved by the Board for Reconstruction of Public Sector Enterprises (BRPSE). Now the issue is pending before the Cabinet Committee on Economic Affairs.

FACT, based in Kochi, is the leading manufacturer of complex fertilizers and the only one of its kind producing ammonium sulphate in south India.

"The net worth of the company has already been completely eroded and is in risk of being declared as a sick company.

"The financial crisis is such that the entire operations will come to a standstill in seven days time and it has already exceeded its borrowing limits from banks. If the company is closed down it will have adverse impact on agriculture and it will not only affect Kerala but also south India," said Chandy in his letter.

Another chief minister who has been pitching for reviving the sick PSUs in his home state is BJP's Prime Ministerial candidate Narendra Modi. At a recent election rally in Assam, the BJP’s prime ministerial candidate showed his concern for a small closed PSU in the state (Ashok Paper Mill). Though political considerations were predominant in his statement still there is hope afloat that if NDA led by BJP comes into power, the PSUs will have something to cheer about.
Attacking the Congress and Chief Minister Tarun Gogoi, Modi said: "Leave Gujarat today, just tell me why is a mill here in Assam closed? What is your chief minister doing? He has been selected three times and he cant't even start a mill which will provide employment to the youth."

In fact, many PSUs are hopeful about a possible Modi wave. Modi believes that a PSU's performance can be improved by empowering the management and disinvestment was not the only option for a loss making PSU.

Under Modi, Gujarat saw turnaround of a number of loss-making state PSUs. Thus, GSFC, which was an ailing company with Rs 4 billion loss in FY03 was revived thanks to a free hand Modi gave to the top bureaucrats in negotiating a turnaround without any political interference.
The company makes a 15 percent RoE (return on equity). The six major listed Gujarat PSUs namely GMDC (Gujarat Mineral Development Corporation), GSPL (Gujarat State Petronet Limited), GSFC (Gujarat State Fertilizers and Chemicals), GALK, GIPL and GNVFC with a cumulative market cap $2.4 billion have grown net profits by 13 percent CAGR over the last five years and 19 percent CAGR over the last 10 years, says a recent report.
Some of the loss making PSUs like MTNL can pin hope on Modi. Modi's policy to let PSUs function without political interference, as evident in his state, may do wonder for good number of sick PSUs.
Since the BJP's manifesto does not say anything about disinvestment of PSUs, we may hope that disinvestment is unlikely to be a top priority for the potential BJP government.