There is no progress whatever. Everything is just the same as it was thousands, and tens of thousands, of years ago. The outward form changes. The essence does not change....
Fourteen months after he assumed charge, the inveterate chairman of India's largest company, Indian Oil Corporation (IOC), Sarthak Behuria, might want to --- in a moment of deep introspection --- take recourse to these famous words of Robert Louis Stevenson on the transience of intransigence. For, despite his noblest intentions, there is little Behuria has to show for any significant outward progress in the oil major. Behuria, as many might recall, had taken over the reins of the company on March 1, 2005 with a Clarion call for "out-of-the-box thinking and innovativeness that knows no boundaries" -- words that disarmed even his staunchest critics, many of them 'insiders', who hadn't quite got over the fact that an 'outsider' was taking over the helm of affairs at IOC.
Indeed, his enthusiasm came as a refreshing breath of fresh air especially after the conscious conservatism of his predecessor, M S Ramachandran. Moreover, while Behuria might have been new to IOC, he was by no stretch of imagination unqualified for the job. A St. Stephens and IIM (Ahmedabad) alumni, the market savvy Behuria could rightfully claim credit -- as director marketing and subsequently as chairman -- for the transformation of BPCL from a somewhat sluggish company into a marketing warhorse.
Besides, Behuria hadn't quite walked into a garden with bed of roses when he inherited the company from Ramachandran. Rising competition from the private sector had slowly, but surely, begun nibbling away at IOC's commanding 44.76% share (in 2004-05) of the market for petroleum products (including gas). But competition was not the only cause for his worries. He had to confront something far more sensitive: The Congress-led coalition government's inability to raise domestic petroleum prices in consonance with rising international prices. This translated into under-recovery of a gargantuan Rs 7,665 crore in 2004-05 on the sale of LPG, kerosene, diesel and petrol -- totalling up to much more than its net profits of Rs 4,891.38 crore in 2004-05 on the sale of LPG, kerosene, diesel and petrol. In comparison, the under-recovery in 2003-04 was meager, in relative terms, at Rs 2,353 crore. In one sense, the giant company -- suffering from the double whammy of losing market share and rising under-recoveries -- was adrift in a stream of consciousness quite its own; its future focus remained very loosely defined, to put it mildly. The need to diversify -- from being purely a refining and marketing company was well-placed, even though the game plan hadn't quite been drawn up. A foray into petrochemicals -- by converting surplus naphtha into value-added products -- was only just taking shape. Efforts at finding a niche in the E&P segment, or making a foray into the marketing of petroleum products in other Asian countries, were turning out to be an uphill task, and big ticket acquisitions eluded the company.
If viewed from this prism, Behuria's task was pretty well-defined: to give a fresh focus to the company's future strategy, to establish newer core competencies, to raise its financial performance and, definitely, to pull up the sagging morale of the company. On the face of it, this appears simple enough. But, clearly, he was embarking on a journey ahead which was peppered with many roadblocks. So, 14 months down the line, how does the chairman's report card read? Straight A's it certainly cannot boast of, but would it be fair to write off his performance completely? Surely, the answer lies somewhere in between.
On the face of it, despite Behuria's sparkling marketing chutzpah and savoir-faire, it is true that the company's market share fell a good 1% -- from 44.76% in 2004-05 to 43.69% in 2005-06. Net under-recoveries would have been a whopping Rs 10,965 crore, but for the fact that they were set off against Government of India (oil) bonds worth Rs 6,483 crore, bringing the final figure down to Rs 4,473 crore. The profit after tax (PAT) for the year is estimated at Rs 4,911 crore. It doesn't need a mathematical genius to do a quick calculation: a combination of government bonds and sale of equity held by IOC in GAIL (worth Rs 349.59 crore) was what really helped window-dress a loss into a profit. In addition, there was also a deterioration in gross refinery margin -- from $6.21 in 2004-05 to $4.43 in 2005-06, building further pressure on the bottom line. For every company, expanding its capital stock is important because future capital flows depend on it. Here again, IOC fared badly: it was able to spend only 78.98% of the Plan expenditure target of Rs 4,576 crore.
In this stormy weather, it didn't just drizzle bad news; it poured. The company's project implementation record during the year can only be described in one word: dismal. The Panipat refinery, which was meant to have been commissioned in June 2004, is now expected to go on stream only by June 2006. PTA and Paraxylene plants are just about ready for commissioning, after a delay of nine months. Cost overruns too have dogged some projects. The naphtha cracker at Panipat saw a price escalation of an unprecedented Rs 4,800 crore -- from Rs 6,300 crore to Rs 11,000 crore. And that's not all. Alarmed by the inordinate delay of projects, Big Brother was certainly not amused. The petroleum ministry delivered a missive, asking the company to seek help from an outside consultant for a complete revamp of the project implementation set-up inside this vast company. IOC management did manage to scuttle the move and launched into, what it termed as an "internal soul searching" exercise. The result was status quo ante. As for its ambitious diversification into new businesses, there was nothing much to show.
So, one may legitimately ask, was Behuria's call for "innovativeness" and "out-of-the-box thinking" just big talk, a whole lot of sound and fury, signifying nothing? Behuria is quick to defend himself. Speaking to this website, he says the picture painted by his critics doesn't quite take into account the vagaries of lighting. To begin with, he says, one year is just too short a time for any dramatic change to take place anywhere, leave alone a company the size and complexity of IOC. The fact that IOC wasn't able to complete its capital expenditure target doesn't necessarily mean that the company is inefficient in using up funds, is his repartee.
"We bought fewer LPG cylinders and there were some other savings elsewhere that caused the shortfall," he says. As for cost escalations, he claims that costs have gone up not just for IOC but across the board and all over the world. "In Saudi Arabia, costs of similar projects have gone up by 100%. Sharp increases were seen by Shell's refinery in China. The cost of the naphtha cracker has gone up because the configuration has changed, besides the fact that costs have gone up secularly," Behuria says. The chairman claims that IOC is currently undertaking its most ambitious expansion project in its history: a total investment of a massive $10 billion -- Rs 3,500 crore in the Gujarat refinery, Rs 11,000 crore for the naphtha cracker and Rs 27,000 crore in Paradip. With internal accruals of Rs 5,000-Rs 7,000 crore per year and a gearing of 0.8, the company is in an eminent position to finance the expansion. Behuria insists that he is not a high-flying CEO. He defines his role more as that of a facilitator: to put projects and people together. "The idea is to identify the right team leader and empower him with people and resources. The choice of the right Project Management Consultant, along with the right contractor, can make all the difference to a project. My job is to put the elements together, in the right mix, so that everything falls in place at the right time," he adds.
As for losing market share, Behuria says he is not particularly perturbed. "IOC suffers from an incumbency disadvantage. New players are constantly coming into the market and where else will they gain their market if not from IOC's big share? IOC is India's most valuable brand, but benefits of customer relationships and brand equity cannot be expected within just a year," he counters.
Behuria has already put together a plan that will push more people into the field to man the fast-expanding marketing network. More marketing divisions rolled out, he points out, and people are now being moved across divisions and equipped with cross-functional responsibilities. But in a Rome-was-not-built-in-a-day rhetoric, he is quick to point out it will be a long time before a company like IOC can begin making money again from marketing petroleum products: "Refining will be our mainstay. The differential between high sulphur crude and product prices should continue to bring in good returns."
What about under-recoveries? Behuria seems surprisingly unruffled by the huge gap between cost-of-product and the sale price. He offers an ingenious answer: "The government will have to take measures to ensure that BPCL and HPCL do not run into losses. Since IOC operates on lower costs than these companies, any attempts to salvage the duo would automatically benefit the company."
In the final analysis, Behuria seems to understand the challenges pretty well: despite downplaying the role of marketing in his scheme of things, he will surely leverage the IOC brand to the fullest extent to derive the greatest mileage. His massive expansion plans and hunt for new businesses will undoubtedly keep him busy for the next few years. For the time being, he intends to hang in and keep it together. Behuria's image as a CEO-of-substance has not really been built on loud moves or grandiose designs. He would rather keep a low profile and be more of an aggregator and a team player. He understands that given the size and complexity of IOC, he needs to be steady and patient. He won't be the one to rock the boat too violently. Time, he knows, is on his side. If he is allowed to play his full innings at IOC, he will be around at the helm till 2012. But, at the end of the day, all progress ends with the money, honey. And that is the bottom line!
Indeed, his enthusiasm came as a refreshing breath of fresh air especially after the conscious conservatism of his predecessor, M S Ramachandran. Moreover, while Behuria might have been new to IOC, he was by no stretch of imagination unqualified for the job. A St. Stephens and IIM (Ahmedabad) alumni, the market savvy Behuria could rightfully claim credit -- as director marketing and subsequently as chairman -- for the transformation of BPCL from a somewhat sluggish company into a marketing warhorse.
Besides, Behuria hadn't quite walked into a garden with bed of roses when he inherited the company from Ramachandran. Rising competition from the private sector had slowly, but surely, begun nibbling away at IOC's commanding 44.76% share (in 2004-05) of the market for petroleum products (including gas). But competition was not the only cause for his worries. He had to confront something far more sensitive: The Congress-led coalition government's inability to raise domestic petroleum prices in consonance with rising international prices. This translated into under-recovery of a gargantuan Rs 7,665 crore in 2004-05 on the sale of LPG, kerosene, diesel and petrol -- totalling up to much more than its net profits of Rs 4,891.38 crore in 2004-05 on the sale of LPG, kerosene, diesel and petrol. In comparison, the under-recovery in 2003-04 was meager, in relative terms, at Rs 2,353 crore. In one sense, the giant company -- suffering from the double whammy of losing market share and rising under-recoveries -- was adrift in a stream of consciousness quite its own; its future focus remained very loosely defined, to put it mildly. The need to diversify -- from being purely a refining and marketing company was well-placed, even though the game plan hadn't quite been drawn up. A foray into petrochemicals -- by converting surplus naphtha into value-added products -- was only just taking shape. Efforts at finding a niche in the E&P segment, or making a foray into the marketing of petroleum products in other Asian countries, were turning out to be an uphill task, and big ticket acquisitions eluded the company.
If viewed from this prism, Behuria's task was pretty well-defined: to give a fresh focus to the company's future strategy, to establish newer core competencies, to raise its financial performance and, definitely, to pull up the sagging morale of the company. On the face of it, this appears simple enough. But, clearly, he was embarking on a journey ahead which was peppered with many roadblocks. So, 14 months down the line, how does the chairman's report card read? Straight A's it certainly cannot boast of, but would it be fair to write off his performance completely? Surely, the answer lies somewhere in between.
On the face of it, despite Behuria's sparkling marketing chutzpah and savoir-faire, it is true that the company's market share fell a good 1% -- from 44.76% in 2004-05 to 43.69% in 2005-06. Net under-recoveries would have been a whopping Rs 10,965 crore, but for the fact that they were set off against Government of India (oil) bonds worth Rs 6,483 crore, bringing the final figure down to Rs 4,473 crore. The profit after tax (PAT) for the year is estimated at Rs 4,911 crore. It doesn't need a mathematical genius to do a quick calculation: a combination of government bonds and sale of equity held by IOC in GAIL (worth Rs 349.59 crore) was what really helped window-dress a loss into a profit. In addition, there was also a deterioration in gross refinery margin -- from $6.21 in 2004-05 to $4.43 in 2005-06, building further pressure on the bottom line. For every company, expanding its capital stock is important because future capital flows depend on it. Here again, IOC fared badly: it was able to spend only 78.98% of the Plan expenditure target of Rs 4,576 crore.
In this stormy weather, it didn't just drizzle bad news; it poured. The company's project implementation record during the year can only be described in one word: dismal. The Panipat refinery, which was meant to have been commissioned in June 2004, is now expected to go on stream only by June 2006. PTA and Paraxylene plants are just about ready for commissioning, after a delay of nine months. Cost overruns too have dogged some projects. The naphtha cracker at Panipat saw a price escalation of an unprecedented Rs 4,800 crore -- from Rs 6,300 crore to Rs 11,000 crore. And that's not all. Alarmed by the inordinate delay of projects, Big Brother was certainly not amused. The petroleum ministry delivered a missive, asking the company to seek help from an outside consultant for a complete revamp of the project implementation set-up inside this vast company. IOC management did manage to scuttle the move and launched into, what it termed as an "internal soul searching" exercise. The result was status quo ante. As for its ambitious diversification into new businesses, there was nothing much to show.
So, one may legitimately ask, was Behuria's call for "innovativeness" and "out-of-the-box thinking" just big talk, a whole lot of sound and fury, signifying nothing? Behuria is quick to defend himself. Speaking to this website, he says the picture painted by his critics doesn't quite take into account the vagaries of lighting. To begin with, he says, one year is just too short a time for any dramatic change to take place anywhere, leave alone a company the size and complexity of IOC. The fact that IOC wasn't able to complete its capital expenditure target doesn't necessarily mean that the company is inefficient in using up funds, is his repartee.
"We bought fewer LPG cylinders and there were some other savings elsewhere that caused the shortfall," he says. As for cost escalations, he claims that costs have gone up not just for IOC but across the board and all over the world. "In Saudi Arabia, costs of similar projects have gone up by 100%. Sharp increases were seen by Shell's refinery in China. The cost of the naphtha cracker has gone up because the configuration has changed, besides the fact that costs have gone up secularly," Behuria says. The chairman claims that IOC is currently undertaking its most ambitious expansion project in its history: a total investment of a massive $10 billion -- Rs 3,500 crore in the Gujarat refinery, Rs 11,000 crore for the naphtha cracker and Rs 27,000 crore in Paradip. With internal accruals of Rs 5,000-Rs 7,000 crore per year and a gearing of 0.8, the company is in an eminent position to finance the expansion. Behuria insists that he is not a high-flying CEO. He defines his role more as that of a facilitator: to put projects and people together. "The idea is to identify the right team leader and empower him with people and resources. The choice of the right Project Management Consultant, along with the right contractor, can make all the difference to a project. My job is to put the elements together, in the right mix, so that everything falls in place at the right time," he adds.
As for losing market share, Behuria says he is not particularly perturbed. "IOC suffers from an incumbency disadvantage. New players are constantly coming into the market and where else will they gain their market if not from IOC's big share? IOC is India's most valuable brand, but benefits of customer relationships and brand equity cannot be expected within just a year," he counters.
Behuria has already put together a plan that will push more people into the field to man the fast-expanding marketing network. More marketing divisions rolled out, he points out, and people are now being moved across divisions and equipped with cross-functional responsibilities. But in a Rome-was-not-built-in-a-day rhetoric, he is quick to point out it will be a long time before a company like IOC can begin making money again from marketing petroleum products: "Refining will be our mainstay. The differential between high sulphur crude and product prices should continue to bring in good returns."
What about under-recoveries? Behuria seems surprisingly unruffled by the huge gap between cost-of-product and the sale price. He offers an ingenious answer: "The government will have to take measures to ensure that BPCL and HPCL do not run into losses. Since IOC operates on lower costs than these companies, any attempts to salvage the duo would automatically benefit the company."
In the final analysis, Behuria seems to understand the challenges pretty well: despite downplaying the role of marketing in his scheme of things, he will surely leverage the IOC brand to the fullest extent to derive the greatest mileage. His massive expansion plans and hunt for new businesses will undoubtedly keep him busy for the next few years. For the time being, he intends to hang in and keep it together. Behuria's image as a CEO-of-substance has not really been built on loud moves or grandiose designs. He would rather keep a low profile and be more of an aggregator and a team player. He understands that given the size and complexity of IOC, he needs to be steady and patient. He won't be the one to rock the boat too violently. Time, he knows, is on his side. If he is allowed to play his full innings at IOC, he will be around at the helm till 2012. But, at the end of the day, all progress ends with the money, honey. And that is the bottom line!
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