committee on public undertakings (2014-2016) 91 … reports/puc/puc-91.pdfcommittee on public...

THIRTEENTH KERALA LEGISLATIVE ASSEMBLY

COMMITTEE

ON

PUBLIC UNDERTAKINGS(2014-2016)

91st Report

(Presented on -7-2015)

SECRETARIAT OF THE KERALA LEGISLATURE

THIRUVANANTHAPURAM

2015

FCPII/AV/PUC/ MAL CEM/25-6-15

THIRTEENTH KERALA LEGISLATIVE ASSEMBLY

COMMITTEE

ON

PUBLIC UNDERTAKINGS(2014-2016)

91st Report

On

The action taken by Government on the Recommendations contained inthe Thirty Seventh Report of the Committee on Public Undertakings

(2006-08) relating to Malabar Cements Ltd based on the Report of theComptroller and Auditor General of India for the year ended

31st March, 2002 (Commercial)


CONTENTS

Page

Composition of the Committee .. Introduction ..

Report ..

Chapter I Replies furnished by government on therecommendations of the Committeewhich have been accepted by theCommittee

..

Chapter II Replies furnished by government on therecommendations of the Committeewhich have been accepted by theCommittee with remarks

..


COMMITTEE ON PUBLIC UNDERTAKINGS (2014-2016)

Chairman:

Shri. K.N.A. Khader

Members:

Shri. Abdurahiman Randathani

Shri. A. A. Azeez

Shri. P. K. Gurudasan

DR. N. Jayaraj

Shri. Elamaram Kareem

Shri. T. N. Prathapan

Shri. Palode Ravi

Shri. S. Sarma

Shri. P. Thilothaman

Shri. P. C. Vishnunadh

Legislature Secretariat:

Shri. P.D. Sarangadharan, Secretary

Smt. P.K. Girija, Additional Secretary

Smt. M.R. Maheswary, Deputy Secretary

Shri. P.S. Selvarajan, Under Secretary


INTRODUCTION

I, the Chairman, Committee on Public Undertakings having beenauthorised by the Committee to present the Report on their behalf, presentthis …............................ Report on the action taken by Government on therecommendations contained in the 37th Report of the Committee on PublicUndertakings (2006-08) on the working of the Malabar Cements Limitedbased on the Report of the Controller and Auditor General of India for theyear ended 31st March, 2002 (Commercial)

The Statement of action taken by the government included in thisReport was considered by the committee constituted for the years (2011-14)and (2014-16)

This Report was considered and approved by the Committee at themeeting held on 19-6-2015.

The Committee place on record their appreciation of the assistancerendered to them by the Accountant General (Audit), Kerala in theexamination of the statements included in this Report.

K.N.A. KHADER,Thiruvananthapuram, Chairman, 02-7-2015. Committee on Public Undertakings.


REPORT

The Report deals with the Action taken by Government on the

recommendations contained in the Thirty Seventh Report of the

Committee on Public Undertakings (2006-08) relating to Malabar

Cements Limited, based on the reports of the Comptroller and Auditor

General of India for the year ended on 31st March 2002 (Commercial).

The Thirty seventh Report of the Committee was presented to the house

on 19th September 2007.

The Report contained eight recommendations and the Government

furnished replies to all the recommendations. The Committee

considered the replies received from the Government at it's meetings

held on 08.08.2012, 30.09.2013 and 14.01.2015.

The Committee accepted the replies to the recommendations

Nos. (1) 34, (2) 36, (3) 37 without any remark. These

recommendations and the replies furnished by the Government form

Chapter I of the Report.

The Committee accepted the replies to the recommendations

Nos.(1) 35, (2)38 (3) 39, (4)40, (5)41 with remarks. These

recommendations, their reply furnished by the Government and the

remarks of the Committee form Chapter II of the report.

fcp2-av-puc (dr) 25-6-2015

CHAPTER - I

Reply furnished by Government on the Recommendations of the Committee which have been accepted by the Committee without remarks

Sl.No.

ParaNo.

Departmentconcerned

Recommendations /Conclusions Action taken by the Government

(1) (2) (3) (4) (5)

1 34 Industries The Committee expresses surprise over thefact that the profit is going down though theprice of cement is going up and concludesthis is because of the huge increase inproduction costs. There are a number ofareas where the company has incurredwasteful expenditure due to lack of vision andplanning and slack management. Thecommittee recommends that the companyshould explore all areas where cost cuttingcan be implemented and ensure that noavoidable expense is incurred by thecompany. The committee wish to beinformed of the steps taken for this.

Cement manufacturing industry, ingeneral, is a highly energy intensiveprocess industry wherein electrical energyfor the running of the machines andthermal energy for the chemical process.During the period 1997-98 to 2001-02 inspite of the achievement of increasedcapacity utilization and turnover, the profitshowed a declining trend on account of theincrease in the cost of main raw materials.

In the referred period in the report, itmay be noted that there was steadyincrease in the power tariff, cost of dieselthat lead to rise in the extraction andtransportation of the lime stone, cost ofcoal and the transportation rates of the rawmaterials & cement, cost of steel whichestablish the hike in the spares cost etc.

fcp2-av-puc (dr) 25-6-2015

1

All along the year of operation since 1984and the consequent ageing of theequipment also paved way to increase inmaintenance cost.

Company had initiated severalmeasures to reduce the production cost andto increase the profitability. Initially, themajor emphasis was given to attainreduction in electrical energy per MT ofcement production. Accordingly, thecompany could bring down the specificelectrical energy to 107.5 KWH/MT in2001 from 125.5 Kwh/MT in 1997. Themodifications adapted for the saving ofelectrical energy are

• Replaced the energy intensivepneumatic conveying system withthat of Belt bucket Elevators in RawMill and Kiln feed system.

• Installed variable speed drive forcement mill fan.

• Improved the power factor from0.92 to 0.94

• Belt conveyor and air slide replacedtwo nos. of screw conveyors.

In the year 2006-07, the company

fcp2-av-puc (dr) 25-6-2015

2

could accomplish 88Kwh/MT of cement,almost at par with the national andinternational standards with the same typeof equipments. Over a period of last 15 years there hasbeen advancement in Cementmanufacturing technology and Companyis in the process of implementing the stateof the art projects in a phased manner.The cost of coal is rising at an alarminglevel and therefore it is prudent to givemore thrust on the projects that will reducethe thermal energy for the manufacture ofcement and realize increased profits. Themajor projects that are completed and inthe anvil to achieve reduction in the cost ofmanufacture of cement and to improveupon the productivity, profitability are:

Procured modern fuel efficientmining machineries worth 400 Lakhand replaced the old earth movingequipments that are uneconomical tooperate.

Project of close circuiting cementmill system was commissioned inthe year 2004 to enhance the usage

fcp2-av-puc (dr) 25-6-2015

3

of fly ash in the manufacture ofPortland Pozzolana Cement andincreased the rate of production ofcement mill from 80 TPH to 110TPH

Replacement of old reciprocatingclinker cooler with the newgeneration coolers. Cost of coal isskyrocketing and the majoremphasis is given to minimize thethermal energy consumptions tomove at par with the internationalstandards. Accordingly, Companyhad invited offers for thereplacement of the old clinkercooler with the latest energyefficient clinker coolers available inthe market that can result in savingin electrical energy, thermal energy,reduction in maintenance cost &time and increased productivitythereby increase in profits,

Replaced the old technology multicyclone, a pollution controlequipment with the cooler ElectroStatic precipitator in the year 2006that protects not only the

fcp2-av-puc (dr) 25-6-2015

4

environment but also preventswastage 0f value added productclinker.

Implementation of In-pit Crushingsystem to reduce the dieselconsumption of the haulageequipments and the maintenancecost.

Apart from the major projects, Company istaking steps to derive better-costeffectiveness.

2 36 The Committee understands that theCompany was using lesser quantities ofchemical gypsum due to lack of availabilityand hence had to use larger quantities of thehigh cost clinker. This has increased the costof production and resulted in loss of Rs.6,41crore during the five years up to 2001-02.The Company can save about Rs.100 lakh peryear if it can obtain sufficient quantities ofchemical gypsum. Therefore the Committeerecommends that the company should takeearnest measure to obtain chemical gypsumfrom other sources to reduce the cost ofproduction. The committee desires to beinformed of the measures taken in this regard

The Company is using chemical gypsumpurchased from FACT, a Government ofIndia Enterprise. The purity of gypsum isabove 90% and the balance quantity is notharmful ingredients. The gypsum is addedto control the setting time. Hence only aspecified quantity can be added, Increasedconsumption of gypsum containing otherelements will have detrimental effect onthe quality of cement. So the company areadding high quality gypsum from FACTfor getting optimum setting time as perBIS specification.

In order to get continued and high quality

fcp2-av-puc (dr) 25-6-2015

5

and the percentage of gypsum being used atpresent.

gypsum, the company had c\entered intoMoU with FACT which has added bonusof reduced MoU prices. Moreover, this isin line with the Government policy ofPSUs helping each other for their rawmaterial requirements.

The percentage of gypsum being used atpresent is 3.5%.

Hence it is submitted that the company istaking all possible steps to ensure supplyof quality gypsum at optimum levelpermitted by BIS.

3 37 Industries The Committee find that though the largescale production of Portland PozzolanaCement (PPC) started in 1991-92 andincreased steadily from 34% of totalproduction in 1995-96 to 90% in 2001-02 andthe company was deriving sufficient internalaccruals, no step was taken to modify theCement Mill and use more quantity of fly ashinstead of costlier clinker. There was greatdelay in submitting the proposal formodification, which was submitted toGovernment only in December 2001. The

The production of Portland PozzolanaCement (PPC) was taken up by MCL inthe year 1989-90, on a small scale of about5% of total production. Then this productwas new to the market, technology was inits very infancy stage. The productionlevel improved to still larger level by1991-92.

The Bureau of Indian Standard (BIS)specification in force was IS 1489 (Part I):1991, which stipulated that the fly ash

fcp2-av-puc (dr) 25-6-2015

6

cash profit of Rs.26.33 crore which thecompany could have made, had themodification been done 5 years earlier, morethan covers the modification cost of Rs.21.70crore. The committee sees not justificationfor the delay in submitting the modificationproposal to Government and feels this is aserious lapse. The Committee recommendsthat responsibility be fixed and action takento ensure that such lapses do not recur. Thecommittee further recommends that steps betaken to obtain sufficient quantities of fly ash.The Committee wish to be informed of thepresent levels of consumption of fly as andclinker.

constituent shall not be less than 10% andnot more than25% by mass of PPC.

The Pozzolana material like broken tiles,bricks etc along with wet fly ash were usedalong with clinker during those days. Inorder to facilitate this, the companyinstalled a dedicated crusher along withbelt conveyor system, However, theaddition of wet fly ash could be possibleonly to the level of 10-15% due tooperational as well as technologyconstraints. By late nineties ‘semi-dry’ flyash was sparingly available, which wastransported in closed tippers. This type ofmaterial transportation and unloading wasshort lived due to heavy pollutionproblems.

In 2000-01, closed fly ash tankers, whichwere non-polluting were slowlyintroduced into the market and gainedacceptance. The thermal power plants,which were finding disposal of dry fly asha nuisance, took advantage of the situationand started encouraging the practices andfacilities started coming up suitable for

fcp2-av-puc (dr) 25-6-2015

7

handling dry fly ash.

Taking cue from the developments, BISalso amended the ISI 1489 Part I: 1991.The amendment No.3 stipulates that thefly ash constituent shall not be less than15% and not more than 35% by mass ofPPC’

While dry fly ash supply through tankerswere introduced, in order to takeadvantage of the situation, technologicalrequirements were foreseen by thecompany and necessary modifications likeunloading and pumping systems,collection hoppers, feed systems wereinstalled by the company. Due to thiscompany could utilize dry fly ash alongwith whatever quantity of dry fly ashavailable simultaneously.

In the year 2001, company has placedorders for setting up of a 600 TPD cementgrinding unit in Cherthala, AlappuzhaDistrict. Though the plant was envisagedfor producing Slag based PSC cementplant, owing to the amendment issued by

fcp2-av-puc (dr) 25-6-2015

8

BIS for Fly ash based cement, thecompany has immediately givenamendments and the Cherthala unit wasset up with facilities for producing PPCwith higher levels of fly ash.

It may be kindly appreciated that thoughfly ash was most cherished, the availabilityof dry fly ash through pollution freetankers were slowly improving during theperiod of 2000-2005. There were very fewplayers and the prices and terms were thereby not attractive. Seeing the potentialmarket many people entered the marketand also the thermal power plants alsoencouraged setting up of collectiontransport facilities during the period andby 2004-2005, the dry fly ash positionimproved, thoug not to expected levels. Inbetween period, the company was able toget fly ash from the secondary market orwhenever there was surplus materialavailable with cement majors who wereincidentally owning and operating the flyash silos of the thermal power plants.

Hence it is submitted that the supply of dry

fcp2-av-puc (dr) 25-6-2015

9

fly ash was always difficult and not muchopportunity was lost by the company dueto delay in setting up of major facilities.

When the company was set up in the earlyeighties, it was with the best and latesttechnology, ie, dry process with 4 stagesuspension pre-heater kiln system. Overthe years, company has systematicallyembraced latest and the best technology inits all spheres of activity. There weresubstantial improvement in its mining andplant activities. The expenses for the samewere met mainly from the internalaccruals. Company has also utilized theservices of reputed cement plantconsultants for identifying the potentialareas of modernization.

It is worth mentioning that during the year1998-2000 company has made substantialinvestment for setting up of a 2.5 MWcaptive power plant, introducing of belt –bucket elevator system for Kiln & Rawmill, modernization of packing plant, truckunloader system etc. Also there wereinvestments in mines for replacing old

fcp2-av-puc (dr) 25-6-2015

10

heavy earth moving machinery.

In the year 2000-2001, company startedactivities of setting up of a 600 TPDCement Grinding unit. The project wascommissioned in the year 2003 Augustwith a capital investment of about 32crores, met from internal accruals.

All these investment resulted in heavydrain of resources. However, in order totake advantage of the emerging situationcompany submitted a proposal forintroducing close circulating of cementmill, a modification proposal withsubstantial investment. The activitiescould only be taken up by 2004. since thecompany was having resource constraintsboth money and labour due to preoccupation with the setting up of GrindingUnit.

The available dry fly ash along with wetash were utilized in Walayar during 2000-2005 and by the year 2003 end Cherthalaunit also was operational with substantialfly ash utilization facility. When there was

fcp2-av-puc (dr) 25-6-2015

11

an opportunity for receiving substantialquantity of fly ash from Tuticorin ThermalPower Plant (TTPS) in the year 2004, thecompany seized the opportunity andpenned a long term agreement for fly ashwhile going ahead with the building up ofnecessary additional infrastructure inWalayar.

It is therefore submitted that the companywas always alive to the situation in the flyash market and very much receptive to thechanges. Since the building of a newfacility at Cherthala was underway, themodification at Walayar was taken upsubsequently, though the necessaryproposals were submitted in advance. It isworth mentioning that the company had toresort to external borrowings tomaterialize the modification due to thedifficult resource crunch situation afterheavy investments in CGU.

fcp2-av-puc (dr) 25-6-2015

12

Steps being taken to ensure fly ash

It is submitted that the fly ash situationhas undergone major changes in thedecade. Now the power plants have alsorealized the market potential of fly ash andinstead of disposal menace now it isconsidered as an additional source ofsubstantial revenue by the power plants.Therefore there has been substantialupward revision in fly ash prices from thepower plants itself. Therefore the earlierattraction, vis-à-vis clinker is slowlygetting neutralized. Also there is stiffcompetition between cement majors, whohave either augmented their plantcapacities and or have set up many newplants.

Company is now meeting its requirementsthrough Public tender. Company also ispersistently approaching the power plantsfor direct allocation of fly ash. Companyalso is utilizing the secondary sources andsources other than power plants, as andwhen necessary.

fcp2-av-puc (dr) 25-6-2015

13

The present levels of consumption of flyash and clinker

The present level of fly ash consumption is25-27% and the consumption of clinker is69-71%. It is submitted that theconsumption levels are dependent on theavailability of dry fly ash, quality ofclinker, which in turn is dependent on thequality of other raw materials and coal etc.The endeavor is to improve the levelsagainst all odds.

Future plants for timely modernization

The company, realizing the fast pacedtechnology advancement, trends in energyand operational efficiency has undertakenfocused studies encompassing all spheresof activity through reputed consultants.Their recommendations are rigorouslyfollowed up and being implemented oneby one after due approvals. A Committeeof senior officials oversees the activitiesso that no opportunity is lost and pro-active voluntary initiatives are in place. Aproposal for setting up a 4000 MT per day

fcp2-av-puc (dr) 25-6-2015

14

fly ash silo and another proposal forsetting up a fly ash drying system so thatwet fly ash can also be made is under waywhich is in consideration of the Board.

It is once again submitted that though thecompany had been receptive andresponsible to the situations during theperiod under review the delays were as aresult of the prevailing difficult situationand the company was in fact ready withthe required facilities when the marketsituation of fly ash improved. There wasno deliberate individual or system failure.

It is also submitted that in future thereshall take all precautions to prevent anyaberrations and shall put a pro-active andvibrant system in force.

fcp2-av-puc (dr) 25-6-2015

15

1

CHAPTER II

REPLY FURNISHED BY GOVT. ON THE RECOMMENDATIONS OF THE COMMITTEE WHICH

HAVE BEEN ACCEPTED BY THE COMMITTEE WITH REMARKS

Sl.No

ParaNo.

DeptConcerned Recommendations/Conclusions Action taken by Govt.

1 2 3 4 5

1 35 Industries The Committee finds that the companydecided to use imported coal instead of theindigenous variety, and that too boughtfrom private agencies, without even oncegoing in for direct import. The committeeis not satisfied with the explanation givenby Government, such as risks of qualityand quantity and difficulties oftransportation, as these are applicable tothe private companies who import coal andsell it on profit and also there are largenumber of companies throughout Indiawho import coal for their own use. TheCompany has never gone in for directimport of Coal and the loss incurred on thisaccount for the period from 07.02.1998 to14.11.2000 alone, is Rs. 5.12 crore. The

Under the delivered Contract (Purchaseof Imported Coal), the buyer is totallyprotected from all uncertainties and risks,whereas in case of High Seas Sale (Directimport of coal) all the risks are to buyer'saccount.

It may be noted that in addition to theabove, MCL does not have infrastructureto handle coal in bulk at its yard atWalayar. If direct import of coal is donethe entire quantity has to be dischargedfrom the vessel and brought to theWalayar and stored. Payment has to bemade in advance by means of IrrevocableLetter of Credit. Whereas in case ofpurchase of imported coal, MCL can go

Fcb2/Av/as/puc/draft report/15.06.2015

2

committee concludes that huge amountscan be saved by the company by importingcoal directly and recommends that thecompany should do so.

for staggered delivery as the order isplaced for supply in installments.Payment is also paid only after receiptand acceptance of each instalment at oursite.

Further, it may kindly be noted that MCLhas a bitter experience with direct importof coal during the year 1988. MCL hadplaced an order for direct import of7,000 MT + 10% of coal of Chineseoriginal on M/s Hansen Neuerburg,GMBH, West Germany in the year 1988.The material was to be delivered atMadras Port. Though the quantityordered was 7,000 MT + 10%, the actualreceipt was 6298 MT only as per theSurvey Report dated 14.10.1988. For theSurvey also, MCL had to incur extraexpenditure. MCL had to arrangestevedoring and clearing at the Madrasport through engaging M/s. Saco TransLimited, Madras, paying extra charges.MCL also deputed two of their officersexclusively to oversee the port operationsconnected with the consignment


3

Further the company had also to arrangeyard at Madras, paying wharfage,transportation of the material throughwagons, paying freight to the Railwaysetc. incurring additional supervision andextra expenditure. Finally when thematerial was brought to Walayar bywagons, there was lot of contaminationcoal received, as lot of sand (in one of thewagons the sand content was as high as25% of the total quantity). As regards thequality parameters, the coal received wasnot meeting the specifications in respectof Useful Heat Value (UHV), Moisture,Volatile Matter etc. The material was noteven matching with the test resultsmentioned in the Draft Survey Reportalso.

A Comparison of High Sea Purchase(Direct import) of coal and DeliveredContract (purchase of Imported Coal)may kindly be seen in the followingTABLE:


4

Table - 1

High Seas(Direct Import ofCoal)

Delivered Contract(Purchase of imported coal)

Sale completes on delivery of Documents.

Sale will be completed only on delivery of Cargo

Purchaser will bear the ship waiting charges in USD

Seller has to bear the waiting charges

Purchaser will pay the Customs Duty/Post charges, in advance

Seller will pay the Customs duty

Purchaser has toarrange Clearingagent and Dischargethe material fromthe Port.

Seller has to takefull responsibility.


5

Purchaser has to arrange his competent person tooversee the entire operations at the port.

Seller has to arrange his person to over-see the entire operations at the port.

Since the entirematerial has to bedischarged all atonce and can betaken to destinationin a staggeredmanner, storage atthe Port to bearranged byPurchaser for whichwharfage has to bepaid by him.

Wharfage to theSeller Account

Transportation(Rail/Road) fromthe port to thedestination has tobe Arranged by thePurchaser

Transportation(Rail/Road) fromthe port to thedestination has tobe Arranged by theseller.


6

Purchaser will bear the shortage upon discharge

Seller will bear the shortage upon discharge

Quality as per the Load Port Certificate is Final

Quality to be ensured at Purchasers Laboratory.

Quantity will be as per the Load Port Draft Survey

Purchaser's site willdetermine the final weight

Exchange fluctuations to purchaser's account

Exchange fluctuations to seller's account

Transit shortage toBuyer's Account

Transit shortage toSellers's Account

All Statutory compliances To Purchaser

All Statutory compliances to Seller

Insurance to Purchaser's Account

Insurance to seller's Account


7

Overheads/Supervision/pilferage/Accidents and All other liaisoning will be To high seas purchaser's Account

Everything will be on Seller's Account

Payment of huge money For plot rent, security, Insurance etc.

Goes to Seller's Account

No Sales tax Applicable Sales tax to Buyer's account

Needs inviting Global Tender No need for Global Tender

Payment has to be made or opening of irrevocable Letter of Credit in ForeignCurrency

No need for advance payment oropening of Letter ofCredit


8

Staggered delivery Not possible

Staggered delivery possible at the samerate

Staggered payment not possible

Staggered payment possible

Payment has to be made in advance byirrevocable letter of credit

A payment need to be paid only after receipt and acceptance by the purchaser

Therefore, it is once again submitted thatconsidering the lack of experience inpre-shipment, inspection and qualityassurance, international commercialpractices, legal issues, all other elementsof import, the nature credentials andsources of material to be imported, thevolume to be considered, the prevailingindustry practices for the companies sizeof cement plant, the existing practice ofimport through experienced import housein public/private sector through publictender is feasible.

Remarks:- The committee suggested to conduct a comparative study regarding the procedure followed for the import of coal by other Indian Companies.


9

2 38 The Committee finds that theCompany failed to demand an increasein price from Kerala State ElectricityBoard, corresponding to the increase inex-factory cost in October andNovember 2001, when it supplied anadditional quantity of 4351 MT cementin December 2001. Since the ratesquoted by private parties at that timewas much higher and the pricepreference of 10 percent was applicableto the company, the company shouldhave demanded a higher price and itcould have obtained the same, thusavoiding the loss of Rs. 21.04 lakh.

The main contention of the Committee,after reviewing the operation for the periods2000-01, 2001-02 relates to the purportedloss of revenue to the company to the tune ofRs. 21.04 lakh by offering additional quantityof 4,156 MT of cement to the kerala StateElectricity Board, over and above thetendered quantity of 15,000 MT withoutasking for any enhancement in prices.

The cement industry as such was goingthrough a very severe depression during theperiod 2001 to 2003 without a phenomenalincrease in production and drastic reductionin demand. As a result, the price of cement inthe open market was coming down day byday each of the manufacturers vying withother to better their participation in themarket, by a price war. MCL, being a highcost unit, was not able to compete with thecement companies in the private sector, bycutting down the cost of production nor inoffering competitive and attractive in terms tothe sale to the dealers. The main dealers werealso trying to fully exploit the situation bybargaining for better terms with the cementcompanies.

MCL could not compete with thesecompanies because of increased cost inproduction, lack of adequate infrastructure

FCBII/AV/PUC /Draft Report/malabar/kseb/15-6-2015

10

for extensive coverage in the market and bylot offering credit to the dealers. TheCompany was balancing their sales with theinstitutional orders giving occasional credit tothe Government Department and PublicUndertaking and taking advantage of 10%price preference by venturing into PublicSector orders.

The open market prices in Kerala in theyear 2000 December was around Rs 140/- toRs 145/- per bag for supply on FOR basis inwhich the freight element is approximately10% and incentive offered to the dealers isaround 3 to 5 % on the selling prices.

It was in this context the company thoughtit apt and appropriate to have someinstitutional workable orders in hand so thatthe company may not be forced to cut itsselling prices drastically in the open market.

The company was giving credit to theGovernment Department and Public SectorUndertakings. But these institutions due tolack of funds could not make payments intime. So, MCL was forced to stop supply tosuch institutions and departments. In the caseof Kerala State Electricity Board, the


11

company have the flexibility of adjusting thevalue of cement supplied, from the monthlyelectricity charges payable to them andKSEB had permitted the MCL to suchadjustment immediately after the supply iseffected. There was therefore, no problem ofcreating outstanding on supplies to KSEB.

As a Public Sector Undertaking, KSEB wasnot authorized to accept supply of cementfrom open market for such a quantity(4,144MT) without open tender procedure orto give any price escalation over the existingprice of cement at which they were gettingsupplies. Their requirement were veryurgent. MCL being the leading consumer ofelectricity, it was necessary to have rapportand cordial relationship with KSEB becausequite often the company have to seek theirhelp on various issues.

When all these factors were evaluated inthe list of declining trend in demand andfalling price of open market cement, it wasfound prudent to take the order for theadditional quantity of 4,144 MT from KSEB

It will also be revealed from verifying thecement stock and the clinker stock in the


12

factory that the company was reallystruggling for increasing sales. The capacityutilization in 2001 was 104 % compared to103.80% in 1999-2000 and the quantity ofcement available for sale during the year2001 was 4.48 lakh tons compared to 4.40lakh tons in 1999-2000. The quantity ofcement and clinker left over in March 2001were as follows.

November 2001 December 2001

Clinker 14,028 MT 17,905 MT

Cement 5,287 MT 5,668 MT

Compared to 1999-2000, the open marketprice of cement was kept high by articulateddemand during the period, cutting down theproduction by all private sector companies toalmost 50% so that the quantity of cementthat would be available for sale would beconsiderably reduced. This clearly indicatedthe prevailing depression in the cementmarket. MCL could anticipate the decliningtrend in the market from the regular feedback it was getting from the field force.Hence the order for the additional quantity of4,144 MT was accepted for execution withoutasking for any enhancement in prices. The


13

profit in the financial year 2000-01 atRs. 19.46 Crore is much higher than theprofit made in the year 2001-02. Therefore,it is not wrong to conclude that the decisionto offer an additional quantity to KSEB at thetendered rate was beneficial to the company.The situation prevailing in 2000-2001 wasfar-far being ideal for cement demand andthis will be very clear from the closing stockof clinker and cement given above

In the circumstances, it is very fair andreasonable to conclude that the decision ofthe Company to give an additional quantityof 4144 MT at the tendered rate was keepingthe larger interest of the company and hadonly helped to better the company'srealizations in the financial year compared tothe previous financial year.

Remarks:- The Committee opined that it is a serious lapse from the part of the company to sell cement at low rate

to Kerala State Electricity Board without conducting a market study and recommended to seek explanation from the

officials responsible for the loss and to fix liability against those who found guilty.


14

3 39 Industries The Committee is dissatisfied with thecompany's explanation for keeping hugeamounts in it's current account and feelsthat the management should be able toascertain with reasonable exactness, theamount it will need at each point oftime. The Committee thereforerecommends that an estimate should bemade based on previous experience, andall surplus fund should be converted intoshort term deposits. The Committeedesires to be informed of the averagedaily balance kept in current accountsduring the years 2004-05, 2005-06, and2006-07

A statement showing month wise balance forthe years 2004-05, 2005-06 and 2006-07 isshown below:-

Fund position

Month 2004-05 (Rs. in lakhs)

2005-06 (Rs. in lakhs)

2006-07(Rs. in lakhs)

April -738.99 -613.98 399.80

May -780.64 -517.03 632.21

June -602.43 -341.79 590.52

July -745.96 -449.85 622.20

August -972.68 -845.09 955.84

September -1,056.54 -1,095.12 949.65

October -1,277.90 -1,256.71 914.74

November -1,197.70 -1,206.59 1170.89

December -881.75 -1,023.35 957.62

January -1,110.45 -506.85 1551.22

February -1,214.21 -109.45 1,968.92

March -1,323.95 180.82 935.42


15

Kindly note that company has implementedthe recommendation fully in the subsequentyears.

This is evident from the interest earned bythe company during the years 2007-08,2008-09, 2009-10 & 2010-11. During the years,company received interest on short termdeposit to the tune of Rs. 273.34 lakhs, Rs.505.53 lakhs, Rs. 470.45 lakhs, and Rs536.75 lakh respectively.

It can be seen from the table above that MCLhas been utilizing the Cash Credit Limitduring the years 2004-05 and 2005-06 andonly during 2006-07 the company got surplusfunds. It may be mentioned that as and whensufficient funds are available, the companyhas cleared the working capital loan of Rs. 10crores with Syndicate bank and out of thebalance, Rs.6 crores was paid to SBI againstthe loan amount of Rs. 642.48 lakhs as on 27-2-2007, taken for Close Circuiting, therebythe balance loan amount could be broughtdown to Rs. 42 lakhs as at the end of the year.

Considering the nature of business, thebalance amount maintained by MCL are justsufficient for meeting statutory payments


16

under the following heads

Figures Rs. In lakhs

Monthly salary to employees : 250.00

Central Excise duty : 200.00

Sales -tax : 250.00

Creditors for raw materials &

Freight payment : 200.00

Total : 900.00

=====

Further, apart from the revenue expenditure,all the project expenditures were also met byinternal generation without any budgetarysupport. Since project activities need on timepayment for timely completion, it wasnecessary to keep funds with short-termdeposits.

In view of the above, it may not be realisticto work on an average daily balance basis andto convert the surplus funds to short-termdeposits.

Remarks:- The committee directed to furnish a detailed report showing the balance amount kept in the current account along with the details of term deposits made by the company.


17

4 40 Industries The committee also wish to knowwhether the amount pending recoveryviz.Rs. 3.93 lakh from M/s IndustrialSecurity Force and Rs. 43.58 lakh fromthe canteen contractor and also Rs. 1.50lakh from the Standing Counsel havebeen recovered.

(a) Recovery of Rs. 3.93 lakhs from M/s.Industrial Security Force

O.S.324/2001 filed against M/s. IndustrialSecurity Force before the Sub-Court,Palakkad is dismissed.

(b) Irregular payment to Canteen Contractor

Domestic Enquiry completed and report ofEnquiry officer is awaited

(c) Recovery of Rs. 1.50 lakhs from Standingcounsel

O.S. 196/2002 filed against Shri S.Sivadas,Advocate before the Sub-Court, Palakkad andAppeal No. AS 277/05 filed beforeDist.Court, Palakkad were dismissed.

Remarks:-The Committee recommended to recover the amount from the contractor and to submit a detailed report tothe committee. The committee sought the reason for not moving appeal in the case.

5 41 Industries The Committee recommends that theManagement should be more vigilant inall matters and take measures to increaseefficiency. The responsibility of eachofficial should be fixed so that each unitfunctions at maximum efficiency. TheCommittee wish to be informed of thesteps taken in this direction.

All Department Heads of the Company weredirected to prepare a draft of their ownresponsibilities and the responsibilities ofeach one of the officials coming under theircontrol and forward the same to theManaging director, Malabar CementsLimited. The Heads of Departmentssubmitted draft duties and responsibilities onvarious dates which were consolidated and


18

modified in line with the existing duties andresponsibilities and revised duties andresponsibilities in respect of each categorypost of officers were prepared.

The above duties and responsibilities shallcome into force with immediate effect. Theofficers concerned shall also continue toattend the duties and responsibilitiespresently attended by them and also attendany other duties and responsibilities assignedby the management from time to time.

Remarks:- The Committee sought a more elaborate explanation regarding the duties and responsibilities assigned to various officials in order to streamline the activities of the Company.

K.N.A KHADER,Thiruvananthapuram, Chairman, 7 -2015 Committee on Public Undertakings.
