SHOULD WE BUILD TOWNSHIPS ?

NOTE
This was written for my employer's house journal. It was published in September 1971 issue of GBJHP NEWS of the Refineries & Pipelines Division of Indian Oil Corporation Ltd. The Editor's comments on this piece are given below.

EDITOR'S COMMENTS :- Shri R N Desai is the one for asking inconvenient questions. But he knows how to get away with them, with the magic that he weaves with his words around the swift stabs of his hard, cold facts. His views may be challenged by both "the Management" and "the Unions". So, let it be. The columns of GBJHP NEWS are open to all.

SHOULD WE BUILD TOWNSHIPS ?

A question like this is bound to shake fellow Civil Engineers if not others as well. In these days of Science and Technology however, we have to constantly question ourselves whether what we have been traditionally doing continues to be right in a given set of circumstances.

I do not know the cost of other townships in the GBJHP family (GBJHP was an acronym used for Gauhati, Barauni, Jawaharnagar, Haldia refineries and Pipelines). Our own Haldia township is however estimated to cost Rs. 2.5 Crores for a total of 730 residential units of various types with the attendent facilities. This gives an average cost of Rs. 34200/- per unit.

Townships have been criticised as a drag on the public sector finances. a capital of Rs.2.5 Crores blocked in the townships involves us in interest charges of Rs.22.5 lakhs per year. Add to this the maintenance cost at the rate of 1 per cent of the capital. This amounts to another Rs.2.5 lakhs p.a. Add the salaries of the maintenance staff and overheads. The total recurring expenditure excluding depreciation, would exceed Rs. 27 lakhs.

Divide this amount by the number of employees accommodated to give you an expenditure of Rs. 3700/- p.a. or Rs. 310/- per month per employee. No doubt, the employees pay rent but the average rent could be taken to be only Rs. 30/- p.m. In other words, our Company subsidises us to the extent of Rs. 280/- p.m. in the matter of housing. Do we count this blessing when we recount our woes ?

My aim in writing this article, is however not to extol the munificence of the management. The point that arises is whether we can afford it. Must be, since we are still making profits ! But isn't there some way by which we can cut down on this expenditure apart from saving Rs. 2.5 Crores for productive invesiment elsewhere ?

The distinguished scientist-cum-industrialist -cum- lately turned government servant, Dr. Vikram Sarabhai has pointed out that every public sector enterprise must determine the mainstream of its activities and concentrate on it. Our mainstream of activities is obviously refining and selling oil. Should not every paisa available to us for investment be put in this mainstream ?

The question that comes up next is, how are we to house our employees ? The answer is simple. Let them live in their own houses ! It was already shown in an earlier article ( How not to lose Rs. 750/- p.m. ? published in March-April 1971 issue ) how advantageous it is for an individual to build his own residence. But where is the initial capital to come from ? Obviously, the employees barring a few, can not invest their money in building houses even if they have the necessary amount. The money must come from organizations whose mainstream of activities is to lend money. The LIC and the nationalized banks already have a scheme in this regard. For those of us who have put in more than six years of service, our Company has already decided to give 80 % of the cost of a house as a loan.

The instalments for the repayment of the loan would be heavy - on an average about Rs. 295/- p.m. and beyond the reach of most employees. But then can the Company not spend a part of the subsidy of Rs. 280/- p.m. that it is now spending on house rent allowances ? Say, Rs. 265/- p.m. could be paid as HRA which together with Rs. 30/- p.m. would make Rs. 295/- p.m. In any case, we have rules by which house rent allowance is paid to the employees who stay in their own houses.

What would be the Company's role in this scheme of things ? The Company would have to act as a catalyst. It would acquire the land, develop it, prepare a town plan, build roads,water, sewer and power lines, divide the land into plots and lease them out to the employees. Proportionate cost of these common services would be charged to the employees. It would initially run the municipal services and later hand over this function to a committee of employees. The Company would also build public buildings such as hospitals, schools, clubs, cinemas etc. out of welfare funds. A few quarters would have to be built for the small number of construction personnel coming to the site. These would later, be utilized for the small percentage of employees who are subject to transfers. Space would also have to be left in the township for later entrants who replace personnel retiring from service.

If we ponder further over this matter, it should be possible to make out a scheme that is mutually advantageous to the Company as well as the employees.To summarise, the advantages of adopting this scheme are as follows :-

1) The Company sticks to the mainstream of its activities. A capital of Rs. 2.5 Crores would be released for increasing the refinery capacity.

2) Recurring expenditure of Rs. 27 lakhs per year apart from depreciation could be reduced.

3) Every employee would be a house owner. He would have a stake in the refinery. He would become more responsible as he would have been exposed to a sort of entrepreneurship.

It would obviously not be possible to change the scheme of things already decided upon in the case of Haldia Refinery except for any further quarters that we may require for expansion. We could, however, give a thought to this matter for our future requirements and formulate a scheme as a sort of pilot project for the next refinery that comes up.

This is one small way in which we can put into practice democratic socialism that many are talking about !

The article ends here

The Editor in a footnote added as follows :-

IT IS A MATTER OF RS. 8 CRORES AND MORE

The bare cost of building the refinery townships at Gauhati, Barauni and Jawaharnagar adds upto over Rs. 551 Lakhs plus. The breakdown of the total cost in respect of the three townships and the number of units that the said cost represents is given below :-

Gauhati - Rs. 150 Lakhs for 641 units

Barauni - Rs. 295 Lakhs for 1487 units

Jawaharnagar - Rs. 106 Lakhs for only 932 units the refinery has.

The cost of additional units and that representing additional related expenditure has not been included in the above figures.

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As anticipated, a Letter to the Editor arrived and was published in the Nov.-Dec.1971 issue of the same journal. It is preceded by the Editor's comment on it.

Editor's Comment :- By many accounts, Shri R N Desai is the most - read writer of the GBJHP family. Here is some further testimony, but of a kind which may not be relished by the ever-growing tribe of Desai fans.

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A LETTER

OUT CIVIL ENGINEERS ? EH !

DEAR SIR,

I was grossly amused to read Mr. Desai's seeming homily on building townships.... er... I mean not building them. On reading it, I was reminded of the story of Kalidasa, the ancient poet, who was one day found sitting pretty on the branch of a tree and merrily hacking away at it where it forked - apparently oblivious of his imminent peril. Unless of course, mr. desai is training his eyes on a cushy job in the Planning Commission, i do not know why he should deal such a heavy blow to his own tribe. An unfortunate band that finds its role shrinking in this bouncing Oil Industry - a Chairman from the clan notwithstanding. ( An allusion to the fact that our then Chairman Mr. Ramabrahmam was a civil engineer.)

Mr. Desai must have meant it as a joke. How else could he - a brilliant mind that he is - overlook these points. The township planned at Haldia at a total cost of Rs. 250 Lakhs is meant for 600 refinery personnel and 130 (approx.) from Marketing, Pipelines, Excise etc. Since people from the last named departments and about 100 from refinery will be holding prospect of frequent transfers, houses for them will have to be built by the Company. Now the division of capital expenditure on township is Rs. 207 Lakhs and Rs. 43 Lakhs for others.

The estimated expenditure of Rs. 207 Lakhs includes the cost of a hospital, a school, a club, a community centre and a guest house, totalling nearly Rs. 20 Lakhs. As the author suggests that these social amenities should be provided by the Company, I also excluded them from my computation. Hence for housing 600 personnel of the refinery, the Company is spending about Rs. 187 Lakhs. Since 100 persons out of that 600 will be transferred in and out, it leaves us with us with the housing problem of 500 only who can be given the benefit of Mr. Desai's revolutionary idea. Let us examine it in detail.

The unproductive expenditure on the houses and ancillaries construction for 500 stationary personnel at Haldia Township will be 5/6 x 187 = Rs. 152 Lakhs (say). The payback period of the refinery has been worked out to be 8 years. If this amount of Rs.152 Lakhs is to be paid back in 8 years, we will illustrate position after the 4th year to get an idea of the average yearly commitment of the Company on this score.

Position in the 5th year

1. Repayment instalment 152/8 = 19 Lakhs

2.Interest @ 9 % on half
the capital as the other
half has already been paid 152/2 x 0.09 = 7.86 Lakhs

3.Maintenance @ 1.5 %
including the
emoluments of the maintenance
personnel 152 x 0.015 = 2.28 Lakhs

4.Land rentals for 45 acres 0.81/29.95 Lakhs
Less return as rent @ Rs.30
per month per capita for 500
persons only 1.81/28.15 Lakhs

TOTAL ( say ) Rs. 28 Lakhs

Mr. Desai recommends in the name of democratic socialism that Company should subsidize @ Rs. 255 per month per capita. That works out to a yearly burden of 500 x 12 x 250 (say) = Rs. 15 Lakhs on which there is no return. Deducting this amount from the average yearly commitment as worked out earlier, we find that the Company is spending nearly Rs. 13 Lakhs on 500 employees for their accommodation for the first 8 years only. The commitment adds upto 104 Lakhs in 8 years' time. This amount of Rs. 13 Lakhs is equal to only one day's production of the refinery whose sale receipts for the first year is estimated to be Rs. 36 Crores. Now an expenditure of less than 0.5 % of the annual turnover on housing is negligible.





But the latent returns in the form of better industrial climate and higher productivity as a result of conducive environmental psychology is incomputable. Who can say that the sparkling and consistent performance of our boys at Baroda (reference is to our refinery at Jawaharnagar at Baroda or Vadodara in Gujarat) has not been due to the wonderful living conditions at their township. In one single year, they earned enough profit to pay back the initial cost of their township 5 times over. ( Figures in the Editor's footnote above indicate that the cost of Jawaharnagar township per residential unit was the lowest !)

Now back to calculations. After the 8th year, the Company is spending nothing, except may be the amount it would have earned as interest on the extra 104 Lakhs it has spent over preceding eight years towards employees' accommodation. from 9th year onwards the Company would be saving an amount of Rs. 6 Lakhs (15.00 - 9.00) by building its own township, expenditure on land rentals and maintenance expenses being offset by rent collected. That is by 25th year, she (it) would have wiped out the unproductive initial investment of Rs. 104 Lakhs and thence in comparison, mr. desai's idea would be a constant drain on the Company's resources, with added headaches in finding new plots of land, developing, leasing out to employees (and the attendent troubles) etc. once in nearly every 20 years. And finally mr. Desai props up his figures by a tangential reference to depreciation on which he does not dwell elaborately, leaving the reader to make his own guess. Here is the catch.

Only in his last article, he had shown us how we were losing Rs. 750 p.m. by not building a house. The burden of his article was the innocent assumption that a property in an urban area appreciates to 10 times its initial value in twenty years' time. That way the township in Haldia (which is destined to become a major port city) now being built at a cost of Rs. 2.5 Crores will be worth 25 crores in 20 years' time, a favourable element which i have kept out of my calculations.

Now, come Mr. Desai, "Heads I win and tails you lose" is too old a gimmick to carry even temporary conviction. Your facts are quite cold but unfortunatrly they are not hard enough.

Yours etc.
An Admirer
(Some Admirer - Ed.)

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My response to the Admirer's letter to the Editor

OUT CIVIL ENGINEERS ? EH !
Dear Sir.
I have read with interest the letter with the above caption from " An Admirer " (sic). The 'Admirer' appears to have shed a lot of tears on behalf of Civil Engineers. This would lead one to believe that he is one of that tribe. It seems however that the tears have been wasted.

The Civil Engineer was once likened to a donkey by a former chief of mine - himself a Civil Engineer. Donkeys, he used to say, are the beasts of burden and till the advent of mechanized transport, did a lot of carriage work for the Civil Engineer. A Civil Engineer's status, in the old days therefore, was measured by the number of donkeys working on his site. His main reson for the analogy however, was that the Civil Engineer, like the donkey, could be kicked by anyone - even by a housewife. And like the donkey, he remains insensitive to any kicking or flogging. To him, it is just one of the routines of life. He plods along his own way, come hail or high wind. If a donkey is a happy animal, a Civil Engineer is a happy human. He becomes either a crook or a philosopher. (Even in our Company, he either gets retrenched - with full benefits to be sure - or he becomes the Chairman. God, my former chief used to say, does not worry himself over only two species - the donkey and the Civil Engineer !

Some would agree with this statement on the assumption that the Civil Engineer would, like the brother-in-law of a king, make himself comfortable for himself, even if assigned to count sea - waves ! (Apparently he stopped all fishing and shipping in the area as it interfered with his royal duty of counting sea - waves. For any exceptions that he made, he charged personal levies. Our present day royal hangers-on have found any number of reasons for personal levies !) .

Frivolity apart, I do not agree that employment of Civil Engineers would decrease by adoption of the scheme suggested in ' SHOULD WE BUILD TOWNSHIPS '. It may even increase. How ? Well, it is a CIvil Engineer's secret ! When winds of change blow, it is wise to bend rather than get uprooted. The ingenious Civil Engineer will, I am sure, bend and find a way.

Coming to the statistics quoted by my admiring Confucius (or is it Confusius ?), he deducts the figure of Rs. 15 Lakhs p.a. from the recurring cost of Rs. 28 lakhs p.a. Actually, these costs are mutually exclusive, being comparative. If I take into account depreciation, the annual recurring costs would be 28 + 250/20= 28+12.17 = 40.17 Lakhs p.a. as against rs. 15 Lakhs p.a. in the form of house rent allowance to the employees, making my scheme even more attractive. There is thus no catch anywhere. Even if as statistically contended, the Company could make up the investment in 25 years' time, there are perpetual headaches in maintenance, allotments etc. which are much more troublesome than finding additional land space once in 20 years.

Thus the the contention that the total extra expenditure is only Rs. 104 Lakhs is not correct. The extra expenditure is Rs. 25.17 Lakhs per year which in 8 years' time, would, amount to Rs. 201.36 Lakhs. To wipe out this amount of Rs. 201.36 Lakhs, it would take infinite number of years ! The interest charges on this amount alone would be Rs. 18 Lakhs as against a house rent allowance of rs. 15 lakhs per year.

Finally, the ' Admirer ' is afraid of the Company is afraid of the company losing the increment in the value of the township over a period of years. To this, the question is - Will or can the Company sell the township ? Will or can the Company raise the rents ? No, it would not even if it could. And the value of a property is judged by these factors. However for the individual employee, the value would increase as he has no such limitations. Hasn't someone said about something being good for the goose not being necessarily so for the gander ?

---R N Desai
P.S. :- Isn't it a good thing for all concerned that the "Admirer" has refrained from saying whom or what he is admiring ?

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EPILOGUE

It is 40 years since the above was written. Following my own advice, I had built a house then for myself on a 5000 Sq.Ft. plot costing a total of Rs. 42000/- (Forty two thousand only) at Vadodara in Gujarat. Today, I am told that it can be sold for Rs.1,50,00,000/- (One Crore and fifty Lakhs only) . The Company did not accept my scheme (of not building townships) due perhaps to the then existing mind set. I do not know what is the position in other Indian Oil townships but I am told that about 400 quarters are lying vacant in the Jawaharnagar township at Vadodara (Baroda) in Gujarat. They are not known to have been sold. A large number of employees have built their own houses and have an experience similar to mine. Many out of towners and even Non-Gujaratis among the employees have built or bought houses/flats here. In general, all over India, a house building spree is still on. Civil Engineers, once almost wholly dependent on the government/public sector for jobs, after a short period of glut, are today in great demand again in both public and private sector as judged by the rush for admissions to Civil Engineering discipline.