| Tough terms
New Delhi, June 4: The government is worried about the US and the European Union’s move to institutionalise treatment of financial debt restructuring packages given by state-run financial institutions to steel firms as subsidy and to place a cap on every nation’s steel output.
Major steel producing and importing nations will be meeting in Paris under the aegis of the OECD next month to thrash out a trade framework that will prohibit steel-specific subsidies by all governments and possibly cap steel production by various nations.
For India, the more worrying factor is the move to treat restructuring packages as subsidy. SAIL has recently been given debt and interest waiver benefits and debt restructuring funds totalling Rs 8,000 crore. Similarly, Essar, Jindal and Ispat have been beneficiaries of debt restructuring funds of about Rs 8,000 crore. Various financial institutions are considering bailout packages for 20 smaller companies like Llyods and Malvika.
“Our consumption is just 29 kgs per person per year. So they (EU and US) also know we would never agree to a cap on output,” said steel minister Braja Kishore Tripathy. India sees the cap demand as one which the EU and the US wants to enforce on the developed states and Asian states like South Korea.
India is willing to consider a temporary three-year cap or a creeping increase in its output clause but not a total ban on increasing output and is hopeful that this will be acceded to. The West’s move to cap production stems from the huge overproduction today — while steel firms across the globe have capacity to produce a billion tonnes of steel every year, demand today stands at just 850 million, which means that there is excess capacity of about 150 million tonnes of steel. Japan wants a repeat of the Benelux pact and wants steel firms to agree to reduce capacity.
However, the Indian government is far more worried that the threat to treat debt restructuring packages being worked out by state-run financial institutions as subsidies is a serious one. If India does not agree to it and the West decides to unilaterally go ahead with this, Indian steel exports to these states will virtually end. Moreover, the benefits India received from a WTO disputes settlement commission’s ruling which termed US curbs on Indian steel illegal will go waste.
The Indian government is arguing that India suffers from poor infrastructure and high cost of funds and the debt restructuring packages are really meant to ‘create a level playing field’.
“Foreign steel firms face a 3-4 per cent rate of interest whereas we face 9-14 per cent,” says Essar group resident director J. Mehra.
In fact, Tripathy is desperately trying to get the FIs and the finance ministry to play ball with him and agree to a restructuring deal for smaller steel firms while the bigger ones have started lobbying for another bailout round.