Who Is Responsible For Vishaka Steel Plant Losses?

Article by Suman M Published on: 9:00 pm, 12 February 2021

The government of India has decided to privatise Rastriya Ispat nigam Limited (RINL), the corporate entity of Visakhapatnam steel plant quoting losses. But, the policies of the government are essentially responsible for the fiscal travails of the steel plant.

  1. The absence of a captive mine for this premier public sector company deprived it a level playing field vis a vis other players in the steel industry both in the public and private sectors. 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 than3,472 crores for RINL.
  2. The government of India has so far invested only Rs 5000 crores. In return the RINL has paid over 40,000 crore to the central government in the form of dividend and taxes. As the centre refuse to finance its expansion, the RINL was forced to raise debt at an exorbitant rate of interest, imposing huge financial burden on the plant. The total debt of Rs 22,000 crore is being serviced at interest rates as high as 14%.
  3. Steel Plant was forced to invest Rs.361 crores in the name of own mines, in Orissa Minerals Development Corporation, but till date not a single tonne of ore has been obtained. This is due to the inefficiency of the management. Apart from this, a fine of Rs.1500 crores has been levied by the supreme court on the pretext of environmental violations, of which Rs.350 crores has been paid and the management is ready to pay the balance Rs.400 crores.
  4. Rs.9440 crores was spent on the expansion of the plant from 6.3 million tonnes to 7.3 million tonnes. Such a huge amount was not incurred in any plant in the world.
  5. The RINL was forced to invest Rs.1683 crore in Forged Wheel industry in Rae Barelli in 2012.
  6. The coke and other raw materials being imported from other countries are handled by Gangavaram Port. The trade unions allege that there are many faulty practices in handling the raw materials. For every ship load of material they are charging 5 tonnes (17.5crore rupees) over and above the tender amount specified. The weighment also is faulty, as many a time the raw material is wet and weighs more. The quality of the material supplied is also inferior. Of late they have started transporting the material by road transport instead of railways. This is costlier than railways. Also the number of accidents occurring due to road transport have increased. All these factors have a bearing on the cost to visakha steel plant.
  7. There is lack of market study to assess and implement production strategy this has resulted RINL dragged to losses.
  8. The steel industry is known for its cyclic character on which the RINL has no control. In fact, the RINL has achieved record production posting a monthly profit of Rs 200 crore in December 2020.

By Prof K. Nageshwar

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