Will YS Jagan’s Plan Save Visakha Steel Plant?

As opposition to the proposed privatisation of the Visakhapatnam steel plant intensifies, chief minister YS Jaganmohan Reddy wrote to Prime Minister Narendra Modi suggesting several alternatives instead of an outright sale of this Andhra jewel. The YSR Congress party claims it as a wonderful alternative to modinomics. Will jaganomics save the Visakhapatnam steel plant from slipping into the private hands?

YS Jagan has rightly raised the issue of the absence of a captive mine for this premier public sector company depriving it a level playing field vis a vis other players in the steel industry both in the public and private sectors. Chief Minister in his letter articulated the woes of the Vizag steel plant. He said “currently the RINL is purchasing iron ore from NMDC Bailadila mines at market price. This has put the RINL at a cost disadvantage of around ‘5,260 per metric tonne of steel (at ore level). Many of its competitors have captive mines for more than 60 percent of their requirement and buy only the rest from NMDC. This excess cost of iron ore has cost implications of more than ‘3,472 crores for RINL,” Jagan pointed out and added that it is essential to create a level playing field for all the players, and allotment of captive mines to the RINL will help tide over this cost disadvantage. Orissa is blessed with iron ore and the captive mine in Orissa state will go a long way in reviving the plant.

Certainly, the central government should heed the request of the Andhra Pradesh chief minister. Parliamentary standing committees have earlier recommended to this effect. But, this long-standing demand remains unfulfilled.

The second option suggested by YS Jagan in his letter to the prime minister is financial restructuring. Jagan said short term loans can be converted into long term loans taking off repayment pressure and interest burden. The high-cost debts can be swapped with low-cost debts. The high-cost debt which is Rs 22,000 crore is being serviced at interest rates as high as 14%. At a time when the government offers several sops to lure domestic and foreign investment, imposing such a high-interest burden on a public sector unit is atrocious. Thus, the chief minister’s suggestion should be seriously considered.

However, the third option suggested by YS Jagan is not only controversial but may lead to gradual privatisation. Chief Minister suggested that Conversion of loans into equity by the banks to remove the interest burden totally and listing the entity on the stock exchange giving the banks exit option through the stock exchange to the general public may also be explored. But, the earlier experience suggests that this would only lead to private players taking over the steel plant over a period of time.

Andhra Pradesh minister for industries, M Gowtham Reddy, hinted at the possibility of state government bidding for the plant in case centre decides to go ahead with its proposal. However, the Chief Minister’s letter has no such mention.

The Visakhapatnam steel plant can be merged with Steel Authority of India Limited (SAIL) so that the cost disadvantage due to the non-availability of captive mines can be overcome. SAIL has its own captive mines with reserves of iron ore sufficient for 200 years.

-By Prof K Nageshwar

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