Monday 10 September 2007

Oil & Gas--ONGC in trouble

Business India, December 2-15, 1996

Will Vasudhara dry up?

The falling crude production figures from ONGC’s prized discovery Bombay High - brings reservoir management and enhanced oil recovery methods into focus.

Shivanand Kanavi

Jawaharlal Nehru and Keshav Dev Malviya visited Gujarat’s Ankleshwar in 1959, to see the first indigenously explored and drilled oil well. In a burst of enthusiasm, Nehru named it Vasudhara- ‘spring of prosperity.

The latest production figures from Bombay High, the Oil & Natural Gas Commission's (ONGC) prized offshore oil field, however, show that the spring is drying up. In-house technical experts cautioned against the mismanagement of the Bombay High reservoir, but ONGC buckled under pressure from the petroleum ministry, allege oil industry insiders. This was apparently done in an effort to artificially boost the production record in the 1980s.

As things stand, the current situation has led to a financial crisis as the country's already high oil imports, due to an ever-increasing consumption, is rising further with the fall in domestic production. And with the oil price shooting up (currently, it is $24 a barrel), this will exacerbate the balance of payments problem.

What is alarming is that even the present government is acting shortsightedly, putting pressure on ONGC to increase its production targets. In fact, it is seven months since ONGC submitted its already reduced targets, but the government is putting unrelenting pressure on it to increase the same. What was a tragedy in the 1980s will turn out to be a farce in the 1 990s. At the same time, the government, given its management of the oil pool account, has suspended payments ONGC for the crude already pumped last month (the account is normally settled weekly, with a month's 'credit' built in), which does not help matters.

What is the issue of productivity and reserves all about? There are two important indicators of reservoir health the gas-oil ratio (GOR) and the water-oil ratio, or water cut. When these ratios go beyond the norms set according to the geological and physical characteristics of an oil field, alarm bells should start ringing for the producer, as they indicate it is fast getting depleted. The well will then either have to be abandoned or expensive enhanced recovery methods be used. But with water and gas content increasing, the continuity of the oil filament flowing into the well head also gets broken, and the blobs of oil that remain trapped in the reservoir become practically inaccessible.


THE OIL STORY

Millions of years ago, the earth teemed with plant and animal life, much of which was located in or adjacent to rivers, lakes and seas. And as plants and animals died, their remains were covered, in due course, by layer upon layer of organic materials, sand and mud. With oxygen consequently cut off from the organic material, the decomposition process was slowed down, and as these areas were repeatedly covered by rock, volcanic material or other layers of sedimentation thousands feet thick, the underlying organic material was subject to tremendous pressures and high temperatures. The sand and mud were compacted into rock while the organic materials trapped therein got 'cooked' - their long and complicated molecules broken down into lighter, shorter hydrocarbon molecules. Crude oil and natural gas, cocktails of the lighter hydrocarbons thus formed.

The most important point to note is that oil and gas exist in minute pores - the size of a pencil lead or even thinner ¬inside compacted rocks. So, if cracks appear in their upper impermeable layers, the oil and gas ooze out. While the lighter hydrocarbons evaporate away, the heavier ones collect on the surface along with sand and mud, forming the 'tar sands' discovered by ancient man and subsequent coinage of petroleum: 'oil from the rocks'. In fact, in India itself, as the tale goes, 106 years ago, workers at a tea plantation in Assam noticed oil oozing out. And their excited British supervisor exhorted them:
"Dig, boy, dig!" That is how the first oil field in India came to be known as Digboi!

Often, underground water also exists close to petroleum, and the pressure exerted by such water can act like a drive. Similarly under high pressure, natural gas dissolves in crude oil, and when the oil finds an outlet - through an oil well, for instance - this gas boils out, providing additional pressure. Undissolved natural gas, known as free gas, acts as the natural pressure drive.

However, the pressure existing in an oil-bearing rock structure will deplete as oil and gas gush out of an oil well. It is estimated that the natural mechanism provided by reservoir energy can lead to the recovery of only 15-20 per cent of the hydrocarbon reserves, so reservoir energy needs to be carefully nursed; even artificially enhanced. The technology involved here, to save large amounts of precious oil and gas from being lost, is called reservoir management.

This disastrous situation can also arise through 'flogging' oil wells. Producing oil at a rate faster than prudent leads to a sharp drop in reservoir energy - the energy of the oil trapped under pressure deep in the rocks (see box). It is alleged that, under pressure to produce more oil by the government then, this is precisely what ONGC did in the 1980s. And production data available to Business India indicates this charge may well be true.

For instance, the oil output during1987 -91 remained more or less the same from Bombay High North (Layer-II) whereas the GOR nearly doubled. In the larger Bombay High North (Layer-III), oil production remained more or less the same in 981-86, but the GOR shot up five times! At Bombay High South's largest reservoir (Layer-III), production remained more or less the same between 1983 and 1991, but I he GOR increased nearly four times!
Finally, a committee was appointed in 199] under the chairmanship of A.K. Dasgupta, former chairman of Oil India. It determined that nearly 90 Bombay High wells were flogged and so needed to be dosed down immediately to build up reservoir pressure. Ultimately, the government could not ignore its advice, and gave permission.

Consequently, production dropped drastically in 1992-93, but the important point is that, since 1992, the GOR has come down by about 30 per cent. The water cut, however, has been increasing at an alarming rate - it reached close to 1:1 in the rich Bombay High South Layer-III and 4:3 in the Bombay High North Layer-III! Obviously, the reservoirs have aged and might yet become uneconomical.

Reserve challenges
In order to recover more than the 15-20 per cent of the reserves possible with the primary method, a host of technologies called secondary and tertiary recovery methods, or enhanced oil recovery methods, have been developed. The most widely used is water injection, discovered nearly 100 years ago, when it was found that when the brackish water that comes out with oil seeps back into the earth, the surrounding wells produce more oil. Nowadays saline water is forced into injection wells drilled to particular depths around a production well. It then seeps back into the reservoir through cracks artificially created by carefully designed underground explosions, and pushes out any oil contained in the smaller pores of the reservoir.

Water injection can be made more efficient by using micro emulsions or micellar solutions, where certain surfactants (detergents) are dissolved in saline water and injected. This leads to greater cleansing of the oil-bearing pores, hence enhanced recovery.

A similar technique involves re-injection of the associated gas that comes out with oil, and even carbon dioxide has been used in this fashion. Some amount of these gases can dissolve in oil and reduce its viscosity, leading to greater oil flow.

Still, all flooding techniques can lead to the fluid front pushing ahead but bypassing large chunks of oil on finding easier paths of flow. So, one needs to slow down the fluid front and make it move as a near circular wave rather than break into a finger-shaped flow that could bypass oilhearing areas. It can be achieved by mixing certain polymers, like xanthum gum, and polyacrylamides in water and then injecting the solution. These longchain molecules effectively provide an impermeable front for the water flood.

Two other methods quite widely used are steam injection and in situ combust ion. These rely on the fact that heat leads to a remarkable drop in the viscosity of oil, and thereby, greater flow towards the well head. While the steam injection method is self explanatory, in situ combustion involves pumping compressed air into injection wells. Combined with the high underground temperatures that exist, this sudden availability of oxygen leads the combustion of some underground oil and gas and a slowly expanding heat wave in all directions, reducing the viscosity of the trapped oil and causing it to flow towards the well head. These two techniques are, at times, combined by injecting air and water alternately, leading to underground combustion and steam generation pushing the oil out.

Saline water injection is the secondary method most widely used by ONGC at both its onshore and offshore production fields. Micro-emulsion and polymer methods are being tested in its depleted wells, but such sophisticated enhanced recovery methods are expensive. In fact, it is estimated, they can become viable only when oil prices go above $32-34 a barrel

So, it is, indeed, surprising that the Centre has not approved ONGC'S production target for 1996-97 and is, instead, putting pressure on the company to produce more! Should ONGC again buckle under pressure from the government to flog the wells, it will prove disastrous.

What is, instead, required is increased R&D activity in developing economical enhanced oil recovery methods and massive investments in fresh exploration. And lastly, but most importantly, ensuring responsible management of the company, free from political interference.

That ONGC has not paid enough attention to enhanced oil recovery seems clear. The importance of this is indicated by the fact that estimates show that if recoverability improves by 1 percent, total production increases by an amount equivalent to the current annual production of ONGC!

An Indian tale
Inexpensive enhanced oil recovery methods can be found. G.D. Yadav, who holds a doctorate in chemical engineering from UDCT, Bombay, was drawn towards enhanced oil recovery methods while doing post-doctoral work in the UK. His work aroused the interest of a group in the University of Waterloo at Kitchener, Canada, who extended an invitation to him to continue his laboratory studies there. He returned in the 1980s to continue his work at UDCT.

Applying his ideas on enhanced oil recovery in 1991 led Yadav and his doctoral students, S.A. Trailokya and K.N. Subramanian to claim they could recover 90-95 per cent of the oil from a reservoir with their methods! The claim was truly astounding as all the other methods known deliver only 30-35 per cent of the total reserves.

Like all good ideas, Yadav’s idea is remarkably simple. He advocates alternate gas and water injection after placing a semi-permeable membrane at the well head. The membrane, on the one hand, allows only oil to seep through and not water, and on the other, slows down the flood front just as the more expensive polymer method does, only from the reverse direction

It will lead to a more complete flushing of the reservoir as the injected gas and water slowly push the remaining oil from both large and small pores. The membrane can be made of stainless steel and even natural substances like sandstone. Additional advantages will be that no water will be produced at the wellhead and the injected gas will remain inside. Thus, the associated gas being flared today could be stored until it was needed.

Another detailed proposal was submitted, for further laboratory studies and actual field trials in abandoned oil wells at Balol and Kalol in Mehsana, north Gujarat. The project would have cost hardly Rs.15 lakh in 1991, and Yadav offered to share the worldwide patenting rights for the technology with ONGC. Despite numerous reminders, nothing has been heard from ONGC till date.

Yadav has now given up his research on enhanced oil recovery and is applying his knowledge to catalysis. This new preoccupation has already led to six new patents filed in catalysis, and recognition as one of the top three earners in UDCT through consultancy, But he still nurtures the fond hope that, some time in the future, the bureaucracy at ONGC may become permeable to new ideas.

ONGC finds itself bound by chains of administered prices and the government's apathy. Just one example - its Neelam field was discovered in 1984-85 and supposed to be productionised by 1991-92, but the government dithered in awarding the offshore platform construction contract. Finally, after a delay of four years, the contract was given to the very same contractor, Hyundai!

Meanwhile, Bombay High offshore production dipped from 20 million tonnes (MT) to less than 14 MT for two consecutive years (1992-93 and 1993-94). The production returned to 20 MT again only in 1994-95, once Neelam began producing. Hence, the big gap between projections made for the 1990s in ONGC’S Perspective Plan 1985-2005 and its actual production (see graph).

As for oil exploration, ONGC has never received any funds from the Oil Industry Development Board. Despite the government collecting huge sums from the oil industry, hardly any money has been ploughed back. So, now that its big find of Bombay High is about to dry up, there are no new big discoveries. As ONGC gets a measly $12.5 a barrel, and $5 of that goes as royalty to the state and Central Governments, it hardly has any money left liver for serious exploration. One needs between Rs.10-20 crore to dig a single exploratory well! And the oil game calls for a large number of wells and the risk of no oil, despite three-dimensional surveys and sophisticated data-gathering.

Drilling offshore Bombay has been restricted so far to shallow water, about 100-150 metres deep. There could be promising oil fields along the western continental shelf, where survey data advises drilling under 400 metres of seawater, but large investments are needed. Similarly, exploration in the greenfield of Gondwana (MP) will be expensive. Surveys further indicate vast gas reserves at great depths under the Indian plate, where extreme conditions have turned gas into the solid form of hydrates, but all these will remain unreachable if ONGC is not paid the international market price for its crude to enable it to invest in exploration.

Eventually, the Vasudhara at Bombay High will dry up, but will new ones be discovered?

Tech Downturn 2001

Business India, May 14-27, 2001

Clouds over the Valley

The causes and effects of the slowdown in the US economy can be most vividly seen in the frenetic hi-tech industry
Shivanand Kanavi

A new spectre has risen in front of Indian investors, right on the heels of the shenanigans of highflying bulls, highly cooperative banks and the bear cartels. It is called the "downturn in the US". It initially looked a distant phenomenon and many tried to discount its effects on Indian IT industry and economy. However, when the darling of Indian tech investors Infosys - lowered its growth target in the coming year to 30 per cent, after having grown at 100 per cent plus this year, the impact of the US slowdown finally hit the Indian shores. Com­mentators are now changing the description of the state of US econ­omy from a 'slowdown' to a 'reces­sion'. Many predict a 12-24 month period for recovery. Obviously, it is better to come to grips with the situ­ation than wish it away or panic. A Business India team visited various hi-tech centres in the US in March-April, 2001 and talked to VCS, entrepreneurs, executives and ordinary folks to get a picture of the depth and extent of the clouds over the Valley.

The gloom hits you as soon as you arrive at San Jose airport. Our favourite cab driver in the Valley, Iqbal Singh, lamented that all his plans of growing from one cab to four and starting his own cab company have come to a naught. "Business is down saabji," he says. "Yeh dotcom shotcom, it screwed up everything." Even the Indian grocer in Bharat Bazaar, a department store in Silicon Valley, says that the slowdown and the mass lay-offs of H1-B Visa holders have reduced his sales of pickles, pappadams, sambhar powder and such.

We had visited the Valley in the October of 2000, much after the dot­com meltdown in April 2000, but we saw none of the panic and fear that we saw this time around. People cracked jokes about the dotcom madness and wrote short stories on how smart Indi­ans saw the crazed US market and made a fast buck out of dotcoms. One even claimed that the original dot in the dotcom was the kumkum bindi on an Indian forehead, in spite of the gadzillions being spent by Sun Microsystems too claim the contrary. Everyone made the dotcom mania sound like a black comedy by Monty Python enacted in some distant land. "The real tech companies backed by products, customers, revenues and profits will not be affected," they said. In fact, stocks of companies like Sycamore and Juniper Networks reached their peaks in September 2000 - five months after the Nasdaq crash of April 2000.

Today, however, they are trading at a much lower value (see table). In the first week of April, Sycamore not only lowered its earnings expectation from $165 million in the previous quarter to $50 million in the last quarter, but even laid off 120 people - nearly 10 per cent of its work force. On April 5, Desh Deshpande, chairman Sycamore Networks, was felicitated by an organ­isation in Cambridge, Massachusetts. The citation read: "The Golden Door Award symbolises the positive influence that immigrants have had on this country by honouring a distinguished American of for­eign birth." Despite the fact that he is the first Indian to be hon­oured thus, he was in no celebra­tory mood. When congratulated, he said: "I have just had to lay off 120 people who believed in me and came to work for me. Ups and downs are part of business and I have seen them before. But at the moment, it really makes me sad."



BILLION DOLLAR BABIES
Sycamore Networks $ 12.25 billion Market Capitalisation as on 12 Jan’ 2001
$ 3.04 billion Market Capitalisation as on 7May’ 01

Strong in Soft Optics-a fusion of hard optics (DWDM)with software. Strong management team with credibility. A billion dollars in the bank.

Infospace $ 2.85 billion 12 Jan’ 2001 $1.58 billion as on 7May' 01

Early mover into wireless web content (has over80% of the US market). Expertise in merchant services. Entering broadband content. Over $500 million in the bank

Tibco $8.01 billion, (as on 12 Jan 2001) $ 2.64 billion (as on 7 May 2001)

Unrivalled in online data mining and services. A must for all financial markets and financial portals

Juniper Networks $41.76 billion (as on 12 Jan 2001) $18.24 billion (as on 7 May 2001)

Undisputed king of the high-end router market. Vinod Khosla –Scott Kriens team has built excellent relations with carriers and has delivered.

I2 Technologies $19.71 billion (as on 12 Jan 2001) $9.37 billion (as on 7 May 2001)

12 products have much broader applications than the ERP software. Stress on cast savings rather than flashy technology appeals to CEOs and CFOs. Good results achieved in manufacturing, retailing sectors.

Even the ebullient Naveen Jain, chairman, Infospace, is mel­low these days. While his com­pany Infospace keeps acquiring new companies and is taking major initiatives in broadband and wireless fields, Infospace's market cap has fallen from about $40 billion in March 2000 to $1.5 billion today. A fall-out of this crash is that in several companies stockholders are blaming the CEOS and founders for the loss in share- holder value. Earlier this year, Jain went out of his way to show his faith in the fundamentals of the company by buying half a million of its shares.

Of course, everything in the US is taken to the extremes. And so is share­holder wrath. According to Ed Hill, a former police officer, who now pro­vides bodyguards to the rich and famous: "There are so many crazies out there, no threat should be taken lightly." As an officer of DEA (Drug Enforcement Agency) he battled drug lords in Columbia, Panama and even South Asia. Today, he provides teams of bodyguards to the CEOs of Internet companies. Obviously, it is a lucra­tive, and growing, business.

Along with the dotcoms, some of their CEOs have also vanished. When we mentioned the success of Indians in hi-tech and the stockmarket crash, another Indian cab driver, this time in Seattle, waved a copy of Seattle Times in front of us. The newspaper had front-paged the story of Ravi Desai, who promised about '$5 million to the poetry departments of three uni­versities, including the University of Washington, Seattle. Poets and poetry lovers, startled by this munifi­cence of a patron of arts, got an ode composed for Desai by the US poet laureate. Alas, after the initial cheque of $6,700 came in, the dotcoms crashed and the poets are still waiting to hear from the gentleman.

Meanwhile, several entrepreneurs who made money through IPOS, mergers and acquisitions have defi­nitely lost a whole lot of their wealth, as Nasdaq slid from 5,000 in March 2000 to below 2,000 in March 2001. Billionaires have become millionaires and some millionaires have even become paupers. Those who built houses or put the money into fairly unexciting assets like old economy stocks or bonds are relatively better off, whereas most people who recy­cled their wealth into other tech stocks have lost heavily. "l don't even want to talk about it," says Naveen Jain, shaking his head. He, like many others, holds on to the belief that the tech sector will come back. In any case, they see no point in liquidating their portfolios in the current market.

The months March and April 2001, were nightmares to all those who made money in the tech boom. April 15, being the deadline for filing taxes, most people were scrounging around for money to pay taxes. We found sev­eral techies burning the midnight oil to bring their income statements to order and making frequent trips to their CPAS. Since taxes are calculated on the basis of the deals they made earlier and since many of them did not make provision for the taxes when they received the money, it was a double whammy. On the one hand their notional wealth has really come down. And on top of it they are being taxed at the higher levels of paper wealth that existed several months earlier.

Those who ventured to become angel investors with the expectation of their seed money multiplying sev­eral fold, are seeing start-ups fold up in front of their eyes. Aware of the problem, a few Valley politicians have begun discussing a scheme whereby taxes can be paid in instalments over the next few years. Obviously, any front-loaded tax cut by the Bush Administration would be most welcome by the normally pro-Democ­ratic techies.

The worst-affected are those who never saw the money but got only stock options. They were taxed on the basis of the value at which the stock was vested with them - though the current value is only a fraction of that. Points out Sashi Pundarika, a financial consultant: "There are many compa­nies where this has happened. Qtera, bought by Nortel for $3.5 billion, was a classic case. On acquisition, VCS got 85 per cent and walked away with the money. The employees and founders could not cash in right away due to the vesting schedule. Many of them are stuck with AMT (alternate mini­mum tax) greater than the current value of their Nortel stock, which, went down to $15 from about $80".

The tech companies which went public before the crash are well capi­talised and have money in the bank. This can be used for acquisitions or for R&D even in this lean period and they can ride out the downturn. "Down­turns and upturns are part of business. However, both these get exaggerated in the Valley. We have a billion dollars in the bank and we can ride out the downturn without cutting back on R&D," says Desh Deshpande. Clearly, companies like Sycamore, Infospace, Juniper, Tibco and 12 have no cause to worry on that account (see table). But those companies, which were on the verge of an IPO or were in the pre-IPO stage with one or two rounds of ven­ture financing, are in deep trouble. Suddenly, the valuations they com­manded before the crash look ridiculous and new money can come in at much lower valuations. That, of course, will mean squeezing the exist­ing investors' stake. Yet, the only other alternative is death by starva­tion for these companies. All hype has vanished from technology compa­nies, be they into optical networking, wireless or enterprise software. Natu­rally, VCS who were chasing deals ear­lier are looking at all the traditional parameters of customers, revenues, profits and so on.

Darwinism has suddenly become the hot favourite among VCS. "Slow­downs, downturns, recessions are a part and parcel of free market economies. They come with certain regularity, except that this one has been long overdue. They are good for the economy, as they stress every body to squeeze out the silly excesses of the good times. Weaker players crumble, freeing up the resources for strong sur­vivors. This downturn was bound to happen as a whole lot of capital was being misallocated and wasted. I have not seen innovation slowdown. It will come back stronger than ever. I have lived through several of these in my 34 years here and things always come back with great gusto," says Kanwal Rekhi, President, TiE.

Amit Shah built two start-ups earlier and sold them - ZeitNet to Cabletron and. Pipe Links to Cisco. Subsequently, he became part of the high-powered charmed circle around John Chambers, chairman Cisco. Amit resigned recently to become a venture capitalist and has several interesting observations to make on the boom and bust. "Whenever a revolutionary product appears and a 'paradigm shift' occurs, such as introduction of TV, autos, computers, there cannot be a 50-70 per cent growth rate for more than two to three years. The commu­nications and computer industry had been growing at 20-30 per cent year on year for eight straight years (roughly 1990 to 1998) before the dotcoms. Then the dotcoms took this growth rate to 30-50 per cent. At this point everybody began jumping in, which resulted in overbuilding, overcapacity, overspending. This final stage took the growth rates to 50-70 per cent year on year in an industry, which was already spending $500 billion a year. The result is a house of cards".

For instance, nearly 300 start-ups were funded at fantastic valuations in optical networking. Obviously, there is no room for all of them. The plug will be pulled for many. One estimate is that nearly 80 per cent might die due to lack of the next round of funding. Only the real technology innovators who have customers and revenues have any chance of getting acquired. A recent example from the chip sector is Vxtel headed by Atiq Raza. Raza is a chip pioneer in the Val­ley who earlier founded Nexgen and later headed AMD, a company that is now challenging even the giant Intel. Intel acquired Vxtel for $550 million in cash in February, 2001. ''It shows that if you have technology, if you have the right industry partnerships, then you are highly valued even in these market conditions," says Arjun Gupta of Telesoft Ventures who funded Vxtel.

For the time being, it is curtains for people like Rohit Chandra (founder eCode). Despite it being a good idea, VCS have pulled the plug on eCode, since there was not enough revenue. In the general downturn, even listed companies are filing for bankruptcies, and not all of them are tech compa­nies either. One man's meat is another's poison. According to New York Times' April 19 issue, law firms that specialise in Chapter 11 (a stage in bankruptcy process in US) are recruiting heavily.

"Not many startups are closed yet, though they are having a hard time raising the next round of financing. The next few months will be decisive. Companies are financially distressed though. Lots of those who can't meet expectations will fail, and the sur­vivors will have a good time," says Rajvir Singh of Redwood Ventures and a distinguished entrepreneur who founded Cerent, StratumOne and Sierra Networks.

As for causes in the downturn in networking and telecom sector, Rajvir Singh says: "DSL (Digital Subscriber Line) is the main culprit. Installation costs are high and revenue is low. Equipment vendors did not see that coming and did not factor that into their revenue forecast. Many CLECS (Competitive Local Exchange Carri­ers), the main service providers, are closed down. They were buying equipment on borrowed money from vendors. There is an over-supply of components and equipment, and buyers have run out of money. This should ease out in a year or so. There will be consolidation at the very top, including major organisational changes. Large companies would buy less of new startups, essentially pay­ing attention to the bottomline."

How did the industry get here? Sanjay Subhedar of Storm Ventures explains: "There were too many ser­vice providers - over 1,300 by last count. Cheap capital, both equity and high-yield debt, helped create them. Flush with capital, these new service providers helped create the boom we saw over the last three years, as they bought equipment and software to build out next generation networks to handle the needs of the bandwidth hungry Internet. U.S. TeIco spending grew from $60 billion in 1998 to $115 billion in 2000, changing the revenue ramp profiles for anyone in commu­nications - Corning, Nortel, Lucent, Cisco, as well as their suppliers - JDS Uniphase, Altera, Xilinx and Vitesse. Demand outstripped supply, lead times stretched out, and the equity markets reacted as one would expect. The markets gave huge premiums to the market leaders in the belief that the excess of demand over supply would continue ad infinitum. P/E mul­tiples skyrocketed to over 300 and, as that metric became ridiculous, the industry began using sales multiples as a substitute."

Though the downturn started with the telecom and communication net­working sector, but with the loss of shareholder wealth, a large number of ordinary people who had followed the tech pied pipers, saw their savings vanish. The money which was kept for the next car, home, college educa­tion was no longer there. "We put all our money in tech stocks after seeing our acquaintances buy a big house with the money they made in the stock market. Today it is not worth the paper," lamented a schoolteacher of Indian origin in California. Similarly, several people who put their 401(k) money (US version of the provident fund) into tech funds, have seen it vapourise. This has led to a drop in sales of old economy goods as well. Clearly, the excessive greed fuelled by a eight-year bull run in tech stocks has led to an aftermath of trillions of dollars lost. This in turn has led to a loss of purchasing power. The over­supply in tech sectors is being com­pounded by demand contraction in other sectors.

The lay offs in the tech industry have been well publicised as cutbacks in expenditure by big companies. However, others give a different per­spective. Rajeev Madhavan of Magma, a start-up creating chip design tools which had been on the verge of an IPO, says: "Some of these lay offs had to happen. When people were hired during the boom, they came with two or three offers in hand. They came to negotiate stock options rather than be interviewed. The downturn has helped companies to get rid of those that did not deliver." Sabeer Bhatia, founder Hotmail and Arzoo, agrees: "The phenomenal growth caused technology companies to hire 'less than ideal' people. Now, forced to become leaner and more profitable, they are shedding this excess weight by laying off people in the thousands. This creates a vicious cycle of rapid decline in con­sumption, which affects the entire economy - the results of which we are witnessing today."

However, this is more of a Valley phenomenon. In places like Boston or Dallas, it is not getting rid of dross but actual concerns on costs that has led to lay offs. Says a senior executive in Texas Instruments: "It has been the saddest exercise in my career. Having been forced to approve a list of people to be sacked is tortu­ous. Some of them are going to lose all their options, even though they are hardly six months away from the deadline (employees can carry all their options after 50 years of age in some corporations). It has taken so much out of me emotionally that I am going to take voluntary retirement in a month or two and start teaching, pre-school kids."

Does all this have anything to teach the Indian IT companies? 'Move up the value chain,' has become a cliche. But Amit Shah has a contrarian recipe: "Before moving up the value chain, consolidate your position as the premier outsourcing centre. There is a chance at taking out the EDS, IBM, Arthur Andersens of the world in turnkey outsourcing. This is where Wipro, Infosys, TCS should be headed. The myriad smaller companies, spe­cialise even to get 'bodyshopping' jobs. For venture capital to flow in, intellectual property will have to be created and market partnerships with US and European companies should be formed. No Indian startup, at this stage, can look to develop products for US or European markets, without hav­ing these partnerships. As for a long­term prognosis, it is excellent. You need a downturn to create an uptick."

The present gloom in the Valley has naturally led to tremendous stress. Bill Osmer, part of the well-known eco-system in the Valley, tries to reduce the prevalent tension by teach­ing yoga and pranayam to techies. Osmer learnt yoga from his guru in Mysore and is a regular visitor to India. He currently teaches yoga dur­ing lunch hours at several corpora­tions in the Valley -' Cisco, Intel, Applied Materials, Netscape, Hewlett­Packard, AMD, KLA-Tencore- as well as at many start-ups. There are other yoga teachers in the Valley today, but Bill was one of the first. Today he is a personal yoga trainer to entrepre­neurs like Rajvir Singh. "The current slowdown has definitely increased stress but the response is split. Some feel they need yoga more than ever to help and some feel they need to work harder than ever to secure their job and don't have as much time for these things. I have a vantage point, because I was already teaching at these companies during the boom years and am now watching the response during the bust. People, as always, have to find a balance in life," says Bill. However, finding balance is a tall order in the frenetic Silicon Valley.

Meanwhile, companies like 12 which started their marketing cam­paign several years ago saying, 'We will save our customers $ 50 billion by year 2005', have upped the figure to $75 billion. Sanjiv Sidhu's pitch may be more soothing to CEOs and CFOs in various old and new economy giants than Bill Osmer's yoga.

Vani Kola, who told us in October 2000 after having sold her company RightWorks, that she would be spend­ing her time climbing mountains like Kilimanjaro and helping her children grow up, has once again launched a start-up called Nth Orbit. And so the cycle continues.

NCL, Pune-- Institutional Profile

Business India, January 2 – 15, 1995
Global chemistry
NCL at Pune has become a source of globally competitive products, processes and technologies.

Shivanand Kanavi

What do General Electric, DuPont, Unilever, Neste OY, Akzo, Ciba-Geigy, Solvay Enzymes, Genencor, FMC and other companies from South Africa, Spain and Germany, besides government agencies from Indonesia, China and Ivory Coast have in common with a host of Indian companies including Reliance, Adarsh Chemicals, Godrej Agrovet, EID Parry, Torrent Pharma, Globe Organics, Tetragen, Hindustan Polymers, GSFC, Excel, Dr. Reddy's Labs, Indian Oil, Indian Organics, GAIL, Voltas, PIL, Astra-IDL, Godrej Soaps, Armour Chemicals, Straw Products, Ficom Organics, Thermax, Hindustan Organics, CETEX Petrochem, Bharat Petroleum, Hindustan Lever and SOL? They have sought technical solutions to their design and manufacturing problems from a CSIR laboratory in Pune, the National Chemical Laboratory.

NCL has long been known as a centre of excellence in chemical research. The tradition established by outstanding chemists who led NCL from 1950 to the late 1980s that included McBain, Finch, K.Venkataraman, B.D.Tilak and L.K.Doraiswamy took it to these heights. Today NCL alone publishes more than 250 research papers in a year in international journals (by comparison Indonesia publishes 60 papers). NCL also holds the maximum number of patents in India, and 50 to 60 patents are filed by it each year. Last year, over 20 US patents were registered. Considering that US patents have the most rigorous procedures to prove novelty and utility, to hold a US patent is a matter of great international prestige.

The remarkable thing about NCL is not that it has changed according to the global technology regime but that it has been able to foresee it. The change started a few years prior to the events in 1991 in Berlin or Moscow or New Delhi. In his address to his 500 -odd colleagues when he took over as NCL’s new director in 1989, Dr. Ramesh Mashelkar said that his aim is to turn the laboratory into an international chemical laboratory. The outlook towards industrial research, technology marketing and consultancy underwent a sea change after that.

NCL’s technology marketing group was set up with well-defined functions. Professionals in law, accountancy and marketing were hired and, using grants from the World Bank, they were trained in internationally well-known technology marketing agencies. People were sent to acquire first-hand knowledge of how the cutthroat game of patenting is played internationally. Training programmes in management, etc, were conducted for the scientific staff by management gurus like Sharu Rangnekar. Special awards were instituted, to be awarded on the foundation day to all those who were successful in registering US patents. Schemes were worked out for providing monetary incentives to scientists by retaining some of the money earned through royalties, international contract research and consultancy. The results were so remarkable that the director general of CSIR formed a committee of CSIR directors chaired by Mashelkar to suggest similar steps in the entire CSIR set-up.

The result was the report produced by the committee in January 1993, entitled "Creating an enabling environment for commercialisation of CSIR knowledge base: A new perspective." Besides what had already been attempted at NCL, the committee had some radical proposals: scientists should be allowed to go on a sabbatical to work in consultancies, financial institutions and industries; scientists should be permitted to function on the board of directors of private sector companies. It was also suggested that CSIR, in lieu of royalty payments, be allowed to take equity in industries which licensed CSIR technologies, and CSIR labs be allowed to set up commercial arms to market their technologies, services and hi-tech products. Immediately a new committee was set up to work out the implications of these recommendations and suggest measures for their implementation. The committee, which was headed by Lovraj Kumar and following his demise by Mashelkar, has just produced its report. An exercise is also on to change the bye-laws and statutes to make them systemic rather than being left to the discretion of individual directors.

But there is some concern that while weaknesses in marketing may be corrected by these changes, it might destroy the atmosphere for basic science in CSIR labs. Mashelkar ably discounts this fear by giving the example of NCL. "Without high science there cannot be high technology and CSIR cannot become CIR," he says. For example, there are people like Dr. B.D. Kulkarni who are doing esoteric work in nonlinear dynamics, fractals and chaos theory and their application to chemical and biological systems. His expertise was used in important work in polymer engineering and catalysis. Similarly, cutting edge work is being done by Dr Ganguly on Langmuir-Blodgett films for developing new materials which will have an effect on the much sought after nano-technology. Top-notch basic work is also being done in organic synthesis which will have an effect on organic synthetic technology, etc.

Mashelkar continues to publish basic papers in chemical engineering science. After receiving his PhD at University Department of Chemical Technology under Prof M.M. Sharma, he went on to set up from scratch a top-notch group at Salford, UK, in polymer engineering starting with the study of non-Newtonian fluid dynamics. Dr Paul Ratnaswamy, head of the catalysis group at NCL, who has a large number of technologies and US patents to his credit, continues to do basic work in catalysis that has received worldwide recognition. There are many other examples. In fact, NCL made the front page of The New York Times in March 1990 - a first for Indian science - for its pioneering work on tissue cul¬ture that allowed bamboo to flower in a few days instead of many years.

This vision of the correct balance between science and industrial research, however, requires R&D management of a very high class, which NCL has been fortunate in having in Mashelkar. In fact, he has been a consultant for Unilever on technology strategy and R&D management and has been repeatedly given assignments by the World Bank to advise on restructuring R&D in China and Indonesia. Another innovation at NCL is the concept of 'kite-flying projects'.
Here projects that are too 'crazy' for any funding agency to consider will be financed by a special fund at NCL. Mashelkar believes that many breakthroughs and new in sights come through such projects. After all, managing science and innovation is like managing creativity, a contradiction in terms, but something that governments and corporations always try to do. There is no formula and there cannot be any extremism and dogmatism.

Another feature of NCL that helps it do good science and even risk-taking in technology development is the research programme. Right now, there are about 200 students carrying out projects for their PhD at NCL. They are registered at other universities but come to NCL for their work. Many senior scientists give PhD students scientific work or risky technology development projects which they cannot do themselves for lack of time or funding. This leads to a lot of basic research papers and even technology advances. Mashelkar proudly points out that out of 21 people who are going to be honoured for acquiring US patents this year, six are PhD students!

One of the major activities of the catalysis group headed by Paul Ratnaswamy is in developing 'green technologies', i.e technologies that involve catalysts and chemicals that are eco-friendly. One such technology has been a new zeolite (a kind of clay) catalyst for Linear-Alkyl-Benzene(LAB). As this story goes to Press, the NCL patented technology is being tried out on a semi¬-commercial scale of 500 tpa at the Reliance Industries complex at Patalganga. The process promises to yield increased LAB production and better product characteristics. The present technology worldwide uses hydrofluoric acid as a catalyst, which is highly corrosive to the plant and dangerous to the environment. Once proven on a commercial scale, there is excellent potential for global export of this NCL-Reliance technology, besides the fact that, by 2000 AD, India itself is projected to be the biggest global player in LAB.

Adarsh Chemicals is putting up a plant at a cost of more than Rs.100 crore to produce the highly valued tetrahydrofuran, gamma-butyrolactone and 1.4 butanediol based on NCL technology. It is superior to the state-of-the-art Davy-Mckee process and is far more versatile. Similar new and more efficient green technologies have also been developed in p-diethyl benzene for Hindustan Polymers, methyl-ethyl ketone for CETEX Petrochem, cyclohexanone oxime for GSFC, diethyl benzene for Polychem, etc.

It is for this reason that new catalyst technology has been contracted to be developed by NCL for GE in speciality chemicals, DuPont in speciality chemicals, FMC for a pesticide intermediate, and catalyst know-how for Neste OY and AKZO. NCL has successfully transferred the technology for commercial production of various catalysts to United Catalysts India, which has been winning hi-tech export awards.

Similarly, the organic synthesis group has developed processes for manufacturing epibatidine, a painkiller with a potency 200 times higher than morphine. The current method involves extracting it from the skin of an Ecuadorian frog - a total of 750 frogs yield only 24 grams of the pure substance. NCL'S process patent application is pending and is being eagerly sought by a South African company. A new process for biotin, one of the B-complex group of vitamins which is of immense importance to animal health and nutrition, has been developed. It does not use the dangerous phosgene gas that is used by other processes and is even better than the one developed by Nobel Laureate Prof Corey of Harvard University. Similarly, ranitidine, an anti-ulcerant, which is the world's largest selling drug, is currently manufactured using nitro methane and alkali which form an explosive combination or using the hazardous methyl isocyanate of Bhopal infamy. A new NCL process using zeolite catalyst has led to a safer manufacture of ranitidine. A complex 17 -step process for brassinosteroids, a plant growth hormone, was developed by NCL. The product is currently being marketed by Godrej Agrovet.

There are many such technology stories in every lab of NCL. For example, there are many new engineering plastics and adhesives being developed by the polymer group headed by Dr Shivram, who left the petrochemical giant IPCL and chose to head the polymer chemistry group in NCL. There is a new additive that will reduce the drag in pumping oil through pipelines and a super absorbent gel called Jal Shakti, which is finding applications in diapers and sanitary napkins, though not in agriculture as expected earlier.

There is a lot of work being done in membrane technology that has led to membranes that can separate oxygen and nitrogen from air without going through liquefaction. For those who wonder how all this hi-tech addresses India's basic problems like providing safe drinking water, the new membrane from NCL that is being tested by Thermax will give virus-free water from the tap - and moreover, at one-fifth the cost of systems based on ultra-violet rays and microfilters now in the market. There are polymers for micro-encapsulation of pesticides that will biodegrade and lead to the controlled release of the pesticides.

CSIR scientists are being enticed by both Indian and foreign companies with fancy pay packets. But Mashelkar believes that the new steps on monetary incentives coupled with research freedom will help retain talent. The embarrassment of riches, however, creates its own problems. So far, royalty payments have not been significant but if crores of rupees soon start flowing into NCL, the apportionment of the money could generate bad blood between different members of the research group. Mashelkar is very conscious of the problem and is proceeding with caution in setting up procedures and detailed log books for the projects.

Mashelkar is very bullish about internationalizing NCL. There are many dimensions to it. Initially he used his reputation as a scientist to get to speak to GE at Schenectady and DuPont at Delaware in the US. Invited for a seminar, he Paul Ratnaswamy is India's catalysis man would arouse so much interest on NCL that by the same afternoon the business development people from these corporations started talking to him, followed by senior vice-presidents. These MNC clients for contract research and joint development have been satisfied enough to keep coming back again and again. Recently, at Mashelkar's initiative NCL bought stall space at the ACHME fair in Germany, the most famous trade fair for the global chemical industry, and marketed NCL as a 'global R&D platform’. He was able to excite so much interest over NCL in Kishan Rana, the Indian ambassador in Bonn, that for once an Indian diplomat is actually carrying out the much talked about economic diplomacy. Rana has been meeting various CEO’s of German companies to tell them about NCL. Half a dozen German companies have already sent queries to NCL.

But one might ask, as some parliamentarians recently did, why infrastructure built with Indian taxpayers' money should be used to do research for multinationals. Mashelkar eloquently convinced them of the benefits of such research. He points out that while dollars are welcome for a fund-starved CSIR, the more important fall-out is that Indian researchers who can do world-class work also become world class in delivery times, quality and documentation, which will raise the overall level of the country's research. Secondly, he points out that with the massive rise in costs in the chemical industry in North America and the subsequent mass retrenchments, many multinationals are interested in actually transferring the technology developed jointly with NCL back to Indian companies to manufacture these chemicals in India with buy-back arrangements.

While receiving the G. D. Birla award for scientific research for 1993 from Prime Minister Narasimha Rao, Mashelkar pointed out that while the government is moving ahead in globalising the Indian economy, it has sadly neglected investing more in science and technology which can make it globally competitive. "We are not afraid of intellectual property rights," he asserts. In fact, he has circulated a well-thought-out note on "Indian S&T in the wake of GATT concerns, challenges and opportunities". He believes that if we learn to play the patent game properly, we can generate wealth by generating path-breaking ideas leading to new processes and products. But we need not necessarily manufacture these products - we can earn considerable sums of money through royalties by selling patent rights. "Indians have a comparative advantage in intellectual activity, we should fully exploit it," he says.

However, this 51-year-old scientist who comes from extremely humble origins in the working class chawls of Bombay and whose saga of struggle and brilliance is inspiring enough to have been included in Marathi school textbooks, has many other dimensions to his personality. He has headed the commission which investigated the Bhopal disaster and which conclusively ruled out sabotage as proposed by Union Car Bide. It demonstrated that poor design of the MIC tank and bad practices led to corrosion of the steel tank, which provided the iron chloride to catalyse an explosive reaction that led to the disaster. He also headed the team that investigated the Nagothane explosion in the Maharashtra Gas Cracker Complex of IPCL. Besides, he was on the scientific advisory group to the Prime Minister during Rajiv Gandhi's tenure and continues to advise the government on a number of issues.

Mashelkar's obsession with globalisation does not limit itself to the economy. In fact, he is a man who does not believe in boundaries. His recent Dankwerts Memorial Lecture in London, the most prestigious lecture in the global chemical engineering circuit, was entitled "Seamless chemical engineering science: the emerging paradigm". The lecture has aroused widespread discussion and enthusiasm in the chemical engineering community the world over. In the lecture, he argued that the boundaries between various scientific and engineering disciplines are vanishing and the more scien¬tists recognise it and use techniques and concepts freely learning from each other, the better science and engineering will develop. In short, Mashelkar was only summing up the basic philosophy that has allowed NCL to become the 'seamless laboratory' it is today.