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Interview

with K.C. Katta, Chairman & Managing Director, Projects & Development India Limited (PDIL)

21.03.2011 / Energyboardroom

PDIL was founded in 1951, as the technology wing of the Fertilizer Corporation of India. You have been involved in most of the major grass-roots fertilizer projects in India, and your core competency remains in fertilizers. How did success in the fertilizer sector lead to your diversification into oil and gas?

In fertilizers, there was a lot of growth up until 1990. But there has been no growth, or major investment, in the fertilizer sector since then. Because of this, PDIL was a chronically sick company, and on the verge of closure. The company was revived, in 2003-04, by way of restructuring and rationalization of manpower. That was a very critical year for PDIL and its turnaround. Subsequently, we decided to diversify into other areas, since fertilizers were not a self-sustaining business for us. In order to survive, we had to look into other consulting opportunities for engineering.

That lead us to enter the oil and gas sector and refinery. We have executed various engineering jobs, for companies like Indian Oil Corporation, ONGC, BPCL, HPCL, Chennai Petroleum, and etc.

Presently, our company is a dividend-paying company—we are paying dividends to our shareholders. Our turnover, which was about Rs. 50 cr. will now be Rs. 100 cr. And 30% of our income comes from the oil and gas sector. We are handling a number of jobs in the sector currently. Our main growth driver is project management services for various refining units—for example, PMC for a 20,000 TPA Hydrogen-generating unit at the Barauni Refinery for IOCL. We have also been retained for foreign jobs —for example, providing engineering services for redesigning facilities at Tel Addas, Oil station of Syrian Petroleum Company.

For oil and gas projects we have to compete against many well established players—but in the case of fertilizers, we are a dominant player. Over two third of the capacity of urea in the country has been engineered by PDIL.

What are the synergies between these two aspects of your business?

PDIL provides engineering services in ammonia. Ammonia engineering is the most process-oriented, critical production imaginable. So our basic inputs come from ammonia engineering. Similarly, hydrogen units, which are being set up in the Refineries, are an aspect of ammonia engineering, so there is synergy there. We have also developed engineering skill for LPG terminals, mounded bullets, etc. The fundamental engineering remains the same—one item to another, there is little difference. And again, ammonia engineering is more critical than even refinery engineering.

You mentioned that in 2003, you restructured the company. This involved laying off 1200 people after a series of year-over-year losses. But since then, the company has had astounding results: for example, from 2007-08 through 2008-09, you recorded a 33 percent growth in a single fiscal year.

You have won the MOU Excellence Award for PSUs the last two years in a row. Can you more specifically describe the inadequacies that you saw in the company, and how you addressed and overcame them? How did you turn the company around?

In 2002, we were left with no financial resources, and we even had to go to the government to pay for our employee wages. We then explained to the government that we had a lot of surplus manpower—we told them that unless that problem was addressed, the company would not survive. That was one part; another part was a cleaning of the balance sheet. We had huge accumulated losses on one side, and loan liabilities on the other.

In short, we told the government that in order to facelift this company, we followed a two-pronged strategy: first, to rationalise manpower; and second, to improve the financial health of the company. We submitted a comprehensive scheme, and the government agreed with our proposal and approved it. Ultimately, we offered severance packages—golden handshakes—to non-technical surplus employees, and most of our employees went voluntarily. After the re-structuring, we were left with only the performers! Idle manpower was eased out.

Subsequently, we improved our IT infrastructure. IT was the main driver for the improvement in the working of this company. We purchased a computer for each employee, and acquired the latest engineering software. We significantly addressed our problems through computerization.

Then, we aggressively went after other areas of engineering—we diversified beyond fertilizers. We got some jobs on competative basis, by aggressively bidding. Some jobs we got on nomination basis. Our motto was, “to grab the job?”—through price competitiveness.

We also inducted new engineers, from 2007 onwards. Every year, we are hiring 50-70 new engineers. That has put fresh blood into an ‘old-ways’ organization. And, as you know, the young generation is IT-savvy—so this has further improved our work. We are engineers. We have about 700 people now, out of whom 600 are engineers, in various disciplines: chemical, mechanical, civil, electrical, instrumentation, etc. That is one of our advantages.

We communicated to each employee that we have to execute the job in time, and with quality. We should be so good, that we do not have to look for jobs—the jobs should come to us. Once people have confidence in us, customers will automatically come—for fertilizers, or for one of our diversified areas.

We have also given our employees variable benefits. As per government guidelines, 50 percent of fringe benefits can be extended for our company, which is a profit-making company. So we designed a scheme that dictates that 35 percent will be given on a fixed basis to all, irrespective of performance. The other 15 percent, however, will be paid variably, depending on the financial performance of the unit, and the performance of the individual. Individuals are assessed yearly, and that part of remuneration is linked to the outcome of their assessment. Employees have to demonstrate their contribution. Every employee has an incentive to perform on both a group and individual level.

In fact, if I go back to the year 2004-05, this scheme was introduced by PDIL as the first such scheme in any PSU. Now, performance-based benefits are a part of government policy.

We have a corporate plan for 20 years. Out of that 20, 4 years have already passed, and we are almost performing as per our set targets. Our main growth driver now should be LSTK (lump sum turnkey) jobs, for which we are exploring various possibilities, and entering into MOUs with prospective partners. For example, we have associated with Enerco, a leading international company for bidding and execution of cross country pipelines jobs.—we are making efforts to enhance our presence in oil and gas.

PDIL is also an ISO 9001:2008 company certified by M/s IRQS.

Why do companies like Enerco approach you for partnerships?

PDIL has very experienced personnel, who have expertise in the field of engineering for pipelines. It must be the feedback that we have received from various parties. First of all, we are experts in engineering; and, furthermore, we are cost-effective. We are the most competitive company in terms of manpower cost, and our rates are comparable with any PSU or MNC.

What opportunities do you see in the market for a company like yours?

Our company has a very long-term vision, as I have said. We have set our goals very high. We want to increase our turnover from 1Bn Rs to 5Bn Rs within the next five years. Once we get the LSTK jobs, there will be no problem—but if we are not able to secure those contracts, such rapid growth will not be possible.

I told you earlier that there has been no major investment In the fertilizer sector since around 1990—and this went on until about 2009. The government of India announced a policy in 2008 for urea investment, but that policy has not gone over very well in the market. Fortunately, there is a project, based on CBM, with an Essar Group associates—Matix Fertilizer and Chemicals—is putting up: a 2200 MTPD Ammonia & 3500 MTPD Urea Plant in West Bengal. That was the major job we secured in 2009. But no further investment in fertilizers was forthcoming.

Now the government is contemplating some improvement in the pricing policy of urea. Once that proposed policy is introduced, I am confident that there will be huge investment in the fertilizer sector. Maybe to the tune of Rs 40,000-50,000 cr. with 10,000-15,000 cr. coming immediately—one project costs about Rs. 4500 cr. and three or four projects are immediately expected. Once the fertilizer projects materialize, PDIL will be getting a lot of jobs. We will be flooded with jobs!

How do you plan to cope with the capacity of taking on a number of major fertilizer projects while continuing to grow in your diversified areas such as oil and gas?

PDIL has adequate experienced manpower to handle the present jobs. However, in view of the major projects to e materialise We are strengthening manpower. This calendar year alone, we may recruit about 100 people. We have also introduced a scheme—another first for an Indian PSU—for retaining retired employees. We utilize our experts who have already superannuated, to the extent possible. We have a formalized system in place for utilizing their services on a requirement basis.

Another source is outsourcing contract employees, or even outsourcing jobs. In fact, we are thinking to empanel certain consultants, who can support us in case of need.

So, we are making all efforts to face and overcome the challenges of increased capacity.

You are not only executing contracts in India, but you have also gone abroad—even as far as Australia, for a major fertilizer project. Do you feel that the world is finally acknowledging the quality of service offered by Indian contractors?

Again, the story goes back. In 2001 or 2002, while we were contemplating the restructuring, an Indian promoter in Australia approached us for an Australian job, and we agreed. But we were not prepared to execute this type of project without additional resources—it was for a 2200 MTPD ammonia plant, the biggest in the world at that time. So we went to the government and asked for financial support. Thankfully, we were successful in our petition, and the government helped us. We then executed what was a very large, prestigious job: we successfully provided detail engineering, construction supervision, procurement services, commissioning services, and etc., for that plant. It was completed in 2006, and it was one of the steppingstones for our turnaround.

That was a major job we had outside India. We are presently working on a number of contracts abroad—for example, providing PMC services for an Algerian company, AOA.

Are Indian PSUs ready to truly internationalize?

I think there is a lot of opportunity for Indian companies to internationalize. I think that EIL, for example, is already there. We are also spreading our wings, and becoming a global company. We are exploring the possibility of setting up an office in the Middle East, to start—we have set a target for next year to establish this office. This will give a general boost to our overseas business.

You have been with the company since 1997. What keeps you motivated?

When I joined the company, it was, again, a chronically sick company. I have faced a lot of problems! This was a challenge for me, but if I ran away from this company, it would be a bad spot on my career. I was convinced that the company should be turned around, and made profitable. In fact, in 2004-05, there was a possibility that I could become the CMD of a certain lower-scale company, but I decided to stay at PDIL. I decided to revive this company, and took on the challenge. By the grace of God, we have succeeded. In 2008-09, we were the best-performing consultancy among all public-sector companies—for that, we earned our second MoU award.

How would you describe the PDIL of tomorrow?

The PDIL of tomorrow should be a very vibrant and growth-oriented organization. We have laid the basic foundation—we are a self-sustained organization. Now, we have to grow to new levels.

Again, once this fertilizer policy is implemented, then we will have many job opportunities. We will be so flooded with jobs, that we will not be able to serve the sector completely! We have a number of notable opportunities in oil and gas, as well, including refinery services, a number of city gas distribution projects, and providing technical services to the PNGRB in terms of evaluating bids.

I think PDIL’s future is very bright.

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