A Case Against Strategic Disinvestment Of RINL - Vizag Steel Plant, The Pride Of Andhra Pradesh

The PSU has over 17,000 permanent employees and has embarked on an expansion plan to enhance capacity to 7.3 mtpa

Posted : 03 February, 2021
Author : Vivek Avasthi
A Case Against Strategic Disinvestment Of RINL - Vizag Steel Plant, The Pride Of Andhra Pradesh

The Cabinet has approved the implementation of strategic disinvestment in Rashtriya Ispat Nigam Limited (RINL), popularly known as Vizag Steel Plant, is a ‘Navratna’ PSU that runs with a capacity of 6.3 million tonne per annum (mt). The Central Government currently holds a 100 percent stake in the company that makes products used in the construction industry.

Katam SS Chandra Rao, Joint Secretary of Steel Executive's Federation of India (SEFI) and also the Execetuvie Committee Member of National  Confederation of Officers' Association (NCOA) told www.indianpsu.com "steel is one of the major component for development of infrastructure like highways, railways, housing, promotion of industries etc. And this should be considered as Strategic industries since India is still developing country.  And Also private companies are occupied major share in production of steel. Government has to speed up its expansion plan through PSUS and achieve around 50 MTPA addition to present steel output, which will be a big step towards achieving steel production to 300 MT by 2030".

Rao added that instead of strategic sale the government has to create a single state owned steel manufacturer by merging all the steel PSUS under MoS will be an excellent step to bring in efficiency, productivity, profitability, faster investment decision, get cheaper funds for expansion projects and reduce their dependency on the Government and achieve above targets with good governance. Moreover, this will certainly enhance the competency and competitiveness of state owned steel sectors in India among Global steel players, he said

Visakapatnam steel plant - RINL - A Backgrounder

After, a decade long fight, after thousands of students lost their valuable academic year and 32 people gave their life, in one of the greatest people’s movements post-Independence “VisakhaUkku- AndhrulaHakku”, Rastriya Ispat Nigam Limited (RINL) Visakhapatnam Steel Plant (VSP), came into reality. 64 villages were evacuated and 22,000 acres of land was acquired to built this gigantic steel plant.  

Initial estimation of this project was around Rs 2,400 crores in early 80s, but due to delay in release of funds from GoI, project cost increased to 8,500 crores. While in all SAIL units the investment by GOI was in the form of equity, but in case of RINL, major amount was given as loan and preferential shares, because of which RINL/VSP started making loses before it started production.  More overall other steel plants under SAIL and TISCO were allotted captive iron ore mines, unfortunately RINL do not have Captive Iron Ore mines till now. Thus RINL/VSP is losing almost Rs. 800-1000 crores per annum on procurement of iron ore only. 

After continuous struggle for funds from GoI, plant was commissioned and started production in the year 1989-90. Around 16,000 were employed as permanent and around 15,000 were employed as contact workers in phase 1 of 3 million tones, thus creating huge employment for the people of Andhra Pradesh. Also another 70,000 people were employed indirectly in various ancillary units.

In mid 90’s Vizag steel was at the verge of being referred to BIFR due to accumulated losses. At that time our beloved former Prime Minister Sri A B Vajpayee took personal interest  in reviving the plant financial position and got loans converted into equity and preferential shares. With the support given by GoI and with dedicated efforts by workforce, RINL/VSP made turn around and started making profits. 

Further lakhs of family’s livelihood is directly or indirectly depending on Vizag Steel. With just about Rs4,900 crores GoI invested in Vizag Steel in 80s, RINL/VSP contributed to the exchequer of about Rs.40,000crs to Central Govt. and about Rs.12000 Crs. to State Govt in the form of various taxes and paid dividend of about Rs.1300 Crs. to Central Government. 
Till now Vizag Steel/ RINL made turnover of around Rs.1,50,00 crores, profit of Rs.10,391/- crores, but unfortunately due to various factors beyond its control like lack of captive Iron Mines, huge Capital investment of about Rs 18,000 crs from market barrowings for Capacity expansion programmes, dumping of cheap Steel from China, world recession etc RINL started making huge losses from FY 2015-16 onwards.

Reasons for Losses

RINL, Vizag steel does not have captive mines for Iron Ore and Coking Coal. Both the materials are not only major raw materials for iron and steel making but also having high impact on cost of production.

RINL/Vizag Steel, one of the best steel plants, has been suffering due lack of Captive Iron ore & Coal mines. RINL’s raw material cost is 63% of total cost where as that of SAIL’s & TATA’s is 48% & 35% respectively (both companies have their captive mines). RINL is losing about 800-1000 crores per annum exclusively on account of lack of iron ore. Though, RINL has been performing well, only on account of high input cost on material, our net Profit has become negative for the last  4 years, added to that huge borrowings (nearly Rs 18,000 crs) from market to increase the plant Capacity as per GoI plan. 

Non-allotment of Captive Iron Ore Mines since long time, capital investment of more than Rs 30,000 cores as per the Govt. of India Steel Policy ( Expansion to 6.3 MT, and 7.3 by modernization), dumping of cheap steel products from China and global crisis, our Plant has gone into deep financial crisis since 2016.

RINL/VSP is using around 6.5 MT of iron ore per year and it will increase to 10 MT in near future as expansion units already commissioned. Thus RINL/VSP is losing almost Rs. 800-1000 crores per annum at present on procurement of iron ore only compared to other steel plant and this will go up further as reach to 10MT consumption of iron ore. Right now VSP is procuring iron ore from NMDC at market price, thus one PSU, i.e. RINL is losing and another PSU, i.e, NMDC is getting profit from this.

As per Original Detailed Project Report(DPR) of RINL, NMDC has to supply Iron ore from deposit 5 & 4 which are very low % of AL, where as NMDC is supplying from Iron ore from deposit 11, 11C, 14 which is high % AL thus RINL Blast furnaces productivity comes down thereby  production cost goes up.

Allotment of captive ore mines to RINL/VSP is long pending demand. Since NMDC is also GoI enterprise, and both are under Steel Ministry, in view of various inherent drawbacks of Vizag Steel, we request a long term MOU between Vizag Steel & NMDC for supply of Iron Ore at cost plus reasonable margin. 
Through RINL acquired controlling stake in Orissa Minerals Development Company Ltd. (Iron ore, Manganese Ore) to have raw material security, all the six mining leases of OMDC were expired by the time of acquisition itself and after clearance in legal cases in various courts, clearance from state and central Government are obtain recently and yet to get the benefits of acquisition.