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Losses prod SAIL to customise

New Delhi, Sept. 22: Steel Authority of India Limited (SAIL) has drawn up plans to cut losses — which shot up to Rs 1,707 crore in 2001-02 — by 70 per cent this year even as it concentrates on a low-key modernisation and brown-field expansion of Bhilai Steel Plant.

V. S. Jain, the company’s chairman designate, told The Telegraph that the thrust now is to make steel that suits the specific requirements of customers. “Our cost-cutting moves, coupled with a marketing strategy under which we customise steel making to suit client needs, have started yielding results. We will contain losses and, in the next six months, may be even reverse it on a quarterly basis,” Jain said.

The steel behemoth started sinking into the red in 1998-99, when it ran up losses for the first time. It lost Rs 1,574 crore that year, forcing the government to sit up and order a restructuring based on a study by McKinsey & Company. The following year, losses went up to Rs 1,710 crore, but came down to Rs 728.66 crore in 2000-01, mainly on account of sale of idle assets and non-core units. The red ink spilled wider in 2001-02, when interest and depreciation costs pushed up the losses to Rs 1,707 crore, renewing concerns about its health.

Jain, who has been largely responsible for the restructuring drive as SAIL’s finance chief, said things are looking up. “Even flat steel products, of which there was an over-capacity, are fetching higher prices. We will manage to sell 10 million tonnes annually.”

First-half losses have been reined in at Rs 700 crore; Jain forecasts a drop over the next two quarters, and possibly no losses at all in the last quarter of this financial year.

One of his most pressing tasks will be to make the best of a low-rate regime. He would, for instance, try to swap high-cost debt for low-cost ones. That should help a firm that coughs up Rs 1,562 crore in interest annually.

Much of the steel maker’s woes stem from huge interest and depreciation costs, the legacy of a costly modernisation programme that began in the early 1990s. That update, carried out at Durgapur, Rourkela and Bokaro plants, cost Rs 12,000 crore, much of which was financed by loans from the Steel Development Fund.

Turning its units into state-of-the-art manufacturing hubs has meant ever-rising amounts spent on servicing debt. From Rs 808 crore in 1995-96, it peaked at Rs 2,017 crore in 1998-99 (including inventory carrying cost) before falling in the past few years due to financial restructuring and better house keeping.

Depreciation jumped from Rs 585 crore in 1995-96 to Rs 795 crore in 1997-98 and to Rs 1,104 crore in 1998-99 and Rs 1,158 crore, thanks to investments in modernisation. This has made SAIL chary of investing in new updates now. But, as Jain pointed out, steel plants need to be upgraded and revamped at regular intervals to ensure that they run more efficiently and cost less to operate.

However, worried that its star performer might start “rusting” away, SAIL has been investing in Bhilai Steel, in small doses. Unlike the crores that was sunk into other plants, the Russian-made Bhilai factory only got a Rs 740-crore investment in the Ninth Plan.

Over the past year, SAIL has pumped in about Rs 900 crore in a sinter plant and another Rs 1,000 crore in an oxygen unit. It intends to invest more in quality assurance equipment for its rail-making facility, and in lacing Bhilai’s blast furnaces with coal-injection systems.

A global tender to set up an ultrasonic rail testing station has been floated. Its interest in rail structures has been rekindled by the Railway’s decision to add 5,000 kms to its 1,200-km track network this financial year.

However, the railways have skimped on line expansion, either through renewal or expansion, over the past few years. Last year, it added only 550 kms through gauge conversion, doubling and construction of new lines. Only 700 kms was added every year during the Ninth Plan, and a modest 9,500 kms since independence.

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