Kerala PSUs benefit from policy impetus

Written by M Sarita Varma | Updated: Dec 15 2009, 03:49am hrs
Keralas public sector units are indeed looking up after being in the red for long. The state governments innovative and pragmatic strategies in the last three years have enabled 16 loss-making PSUs in the state, including a few perennially sick ones, to become profitable. Only 12 out of Keralas 42 state PSUs were reporting profits three years ago. At present, 28 PSUs are making profits. The number of loss-making units has gone down to 14 from 30. Besides, three units which were under liquidation have been reopened. Recently, the state government has moved the high court to stop liquidation proceedings in two other units.

In a year or two, Kerala wont have a single PSU in the red, declares Elamaram Karim, the states industry minister. Showcasing robust and efficient PSUs is the best way to attract private investors attention. State PSUs with measly finances easily put off any potential investor, he says. Indeed, Karim, a former a trade union leader, has proved to be a deft business manager. For the next year, the state government has set a profit target of Rs 245 crore for its PSUs, which employ 1.2 lakh people. While their cumulative profit was Rs 169.45 crore in 2008-09, the state PSUs had reported total losses of Rs 69.64-crore in 2005-06.

Three years ago, the situation was worse: these units were down with accumulated losses of Rs 5,133 crore, as per the State Planning Boards statistics. The networth was negative in the case of 28 units. So, how did the state achieve the turnaround First, we did a professional study on how the profit-making units could yield more profits; loss-making units could be turned around; and what could be done with the basketcases, says T Balakrishnan, principal secretary (industry), Kerala.

The Public Sector Restructuring and Internal Audit Board (RIAB) began to monitor closely all the 42 state PSUs in Kerala. But the state government was reluctant to spend a fortune on its loss-making enterprises. So, it had to be a recast on a shoe-string budget, says Karim. The restructuring budget was only Rs 40 crore in 2006-07.

For some, marketing was where the shoe pinched. RIAB spotted that there were firms, where the state government itself could be the anchor customer. For example, the electricity-meter making unit in Kollam was struggling for a market, even as the states public utility KSEB was buying meters from the open market at higher prices. Promptly an MoU was signed between the meter company and KSEB for the latter to buy a lions share of its meters, with a first-trader preference. But first we got an assurance that quality and timely delivery will not be compromised, says AK Balan, the state power minister. Similarly, the state health ministry agreed to buy the pharmaceutical products of Kerala State Drugs and Pharmaceuticals based in Alappuzha. Cross-utilisation of PSUs with mututal purchase preference is an obvious solution to the marketing issue, says Balakrishnan.

Restructuring started from the top of the pile. Political appointments were dispensed with and a board was set up to recruit the right CEO for each unit. Professionals were hired on performance contract with negotiated salaries. Companies were given monthly production targets.

Yet, industry insiders say that in some cases, corruption was responsible for losses. For instance, profits of Malabar Cements in 2005-06 was Rs 5 crore. In the next two years, it ran into losses. Performance transparency turned around the unit. In the last two years, its profits went up to Rs 29 crore and Rs 39 crore, respectively.

The brightest restructuring strategy was to set the ailing state PSUs piggyback central PSUs. The first big break came from Garib Rath. At first, Garib Rath, and later Rajdhani Express, placed orders for AC power systems with Kerala Electricals Limited, towing the Kochi-based PSU to the profit-yard. Steel Authority of India has been looking at technology-mentoring for steel industries in Kozhikode. Angamaly-TELK, a former Hitachi partner, is emerging as mobile transformer supplier to NTPC. A unit of Bharat Electronics Limited (BEL) was set up in Kalamesseri. A unit of HAL was sanctioned in Kasaragode. BrahMos took over Kerala Hitech Industries to make it the countrys missile production workshop.

What if a central PSU mentor/owner of the once-distressed Kerala PSU wants to sell its equity to private investors We have anticipated this, says Karim. Whenever a Kerala PSU signed an equity-contract with a central PSU, the state has incorporated a clause saying that if the central PSU goes in for equity offloading, the Kerala government will be given the first preference to buy back shares that it once sold to the central PSU.

Mergers are next on the PSU recast agenda. RIAB had proposed the merger of ten firms in identical lines of business. Mergers of PSUs are, however, easier said than done. Its going to be a long road, strewn with litigation and dampened by the bile of apprehensive workers,he says. State industry minister Karim, for his part, has no illusions that the state PSUs will all become profit-making entities overnight. But then, as Amiya Kumar Bagchi of the Institute of Development Studies, Kolkata, says, its a model PSU recast worth drawing a lesson or two from.