The Story of FACT Ltd

Title: The Story of FACT LTD - A Study in Public Sector

Author: T T Thomas

Publisher: Excel Books, 2004 (First)

ISBN: 8174464034

Pages: 212

September 30, 2001 dawned as an uneventful Saturday for the employees of the Fertilisers and Chemicals Travancore Limited, one of the leading state-owned fertilizer companies in India and located in Kochi, Kerala. Being the end of the month, a few people were bound to retire from the services of the company on that day. Little did they know that in a government office far way in the national capital of New Delhi, an order was signed the previous evening reducing the retirement age of the company from 60 to 58 overnight. At the stroke of a pen, this nullified the services of 378 people who had already crossed the age of 58. A confidential order was prepared in the company, listing out the names of the 378 unfortunate personnel under the strict supervision of a General Manager of the HR department, whose name was the first in the list. The people knew of the decision only after they reported for duty in the morning. Some were on leave that day and one person was on an official tour to central India. Such excuses did not avail, all of them had had to leave the company that day itself. The shock, consternation and dismay felt on that day were simply indescribable, somewhat comparable to what 9/11 must have appeared to Americans just 19 days before. Some of them were literally shattered by the decision, but put up a brave face for their colleagues. In fact, their co-workers were inconsolable at the end of the day. Setting aside the human factor for a while, don't you think that a company which takes such momentous decisions on the fly would be among the Fortune 500 list, or at least an incumbent among the Maharatna companies in India? Unfortunately, nothing is farther from the truth. It still pulls on, wiping away the last rupee of its net worth in a mounting burden of debt and losses. This book is the story of the company as told by one of its Chairmen-cum-Managing Director of the company. T T Thomas joined FACT Ltd in 1963 as an executive trainee and climbed steadily up the corporate ladder till he adorned the topmost position. He was also the president of the All India Management Association (AIMA) and treats us with a very pertinent survey on the state of public sector enterprises in India prevailing in the year 2003. The story of FACT is generally representative of the state of public sector in India.

FACT was founded in 1943 in the princely state of Travancore in South India in the immediate aftermath of the horrendous Bengal famine which killed an estimated 2.5 million people. The enlightened king of Travancore, who had granted temple entry rights to depressed castes seven years back, immediately saw the need to increase food production in the state by scientific means. The early years of the company witnessed some novel chemical processes instituted for the first time on an industrial scale. Trees were cut from the evergreen forests of Idukki, transported through Periyar River to Aluva and gassified to make ammonia for the production of ammonium sulphate. Gradually the company expanded its product range to include urea and complex phosphatic fertilizers. Quite unusually in the fertilizer industry, a second production division was granted to the company at Ambalamedu. In the 1980s, it diversified into petrochemicals with the production of caprolactam, a raw material for the manufacture of nylon filament yarn. A complex brew of internal and external factors made the company slip into the red with the setting up of an ammonia plant at a huge cost which was unnecessary and unwarranted by the circumstances. The loan burden and the crippling interests brought the company to its knees, which was somewhat alleviated by a loan write off and conversion of debt to the government as equity. It has since stopped the production of urea and caprolactam and struggles on under the wings of its legendary product Factamfos 20:20 which is an excellent nutrient in the farm sector and have a near universal acceptance in South India. The enterprise’s early years were of technological innovation and growth. It was financially strong and technologically advanced. This book tells the story of its journey from riches to rags.

Many of the managerial lapses described in the text specifically concern the operations of FACT and are not much relevant to general readers. Thomas condenses the illnesses afflicting the company on more than one occasion. Non-accountability of poor performance, assigning no value for time in decision-making, fear of crucifixion for bold decisions, observance of the rituals of procedures and an aversion to profits as a desirable objective are some of the things which he remembers from his career stretching to more than three decades. Decision makers had no sense of ownership of the company. There was also the pathology of satisfactory underperformance, a state of contentment where in the incumbent management is happy with the state of the company though it is underperforming on vital parameters like return on capital employed, profits, profit margins and so on (p.85). To add to the trouble, there was no stakeholder pressure on the company, the owner being the government. The author points to the presence of officers’ unions which vitiates the atmosphere. The trade unions were circumscribed by laws such as the Industrial Disputes Act, while managerial unions did not have these limitations. They often intimidated the senior management with tactics such as the threat of vigilance enquiry. Political intervention under the aegis of forums such as the Save Fact Action Committee eroded the clout of management. Unions and their political connections could decide things in the long term and management got marginalized. Thomas wants the workforce of FACT to open their eyes to truth. They wanted to believe that deregulation of fertilizer industry, globalisation, government’s ‘wrong’ policies or some extraneous factor did the company in. This may be true, but equally responsible are the internal issues such as excess manpower, low productivity, restrictive practices, total absence of cost consciousness, a floating group of workers and officers’ union office bearers and a generally laid back atmosphere. What still saves the company is an established customer base, a historically developed distribution channel and a strong brand.

Like any of the management experts in the post-liberalization era, Thomas blames the license-permit raj brought in by Indira Gandhi when she swerved the country’s economy dangerously to the left. FACT has been a victim of this flawed policy during its expansion phase at Ambalamedu. It wanted to establish an ammonia plant there. Proven enterprises in the UK, US and Japan were ready to transfer technology but only in lieu of payment through foreign currency. Indira’s regime was loath to part with foreign exchange. In its search for second-rung manufacturers, the company encountered Montecatini Edison of Italy, who agreed to provide financial assistance. They, however, did not have experience in designing large single stream ammonia plants. The plant was mechanically completed in 1971, but could be commissioned only in 1973 due to a long series of technical issues. It was also beset with problems from the very beginning of its operational career. The supplier’s credit on procurement limited the company’s ability to source critical machinery only from Italy. The plant could be run at full load for the first time in 1990, after a lapse of seventeen years since commissioning. A mirror image of the plant at Durgapur in West Bengal was closed down in 1994 while FACT’s plant was taken down in 2001 for good.

The book is graced with many annexures containing charts and tables supporting the major arguments. Detailed narrative of the author’s legal battle to get appointed as the marketing director of the company is superfluous in the larger scheme of things. The book’s sole focus is on the story of FACT, the evaluation of the public sector in India is mainly an extrapolation of the logic applicable in FACT’s case and presented as an afterthought. Some old photographs of the company’s early operations would have added immense interest and impact to the narrative.

The book is strongly recommended to students of management.

Rating: 3 Star