YS Jagan writes to the center looking for an opportunity to discuss VSP relaunch options
AMARAVATI: Andhra Pradesh Chief Minister YS Jagan Mohan Reddy wrote to Prime Minister Narendra Modi again to consider options for reviving the Vizag steel plant (Rashtriya Ispat Nigam Limited), rather than a proposal to divestment.
In the second letter, the Chief Minister said: “ I had clearly mentioned the problems faced by Rashtriya Ispat Nigam Limited (RINL), Visakhapatnam, suggested various solutions to revive the same and asked to reconsider the decision of 100% strategic divestment. I also addressed the trade union minister of steel to offer him my suggestions for relaunching RINL and making it financially sound.
Here are the excerpts from the letter:
Hon’ble Union Minister of Finance, Smt. Nirmala Sitharaman in her response to Lok Sabha from 08-03-2021 stated that the Indian government will go ahead with the plan to divest 100% of the Indian government’s capital in RINL as well as RINL’s stake in subsidiaries / joint enterprises through strategic divestment through privatization. This is a matter of great concern to the people of Andhra Pradesh, RINL employees and other stakeholders. ”
I would like to bring to your kind attention once again the importance of relaunching RINL, its association with the sentiments of the people of Andhra Pradesh and the various options available to revive the plant and its sustainability in the future.
As you know, Rashtriya Ispat Nigam Limited (RINL) the Visakhapatnam Steel Plant Company (VSP) is a Navratna company under the Ministry of Steel, Government. from India. It is the largest public sector industrial unit in the state, directly creating employment opportunities for nearly 20,000 people and many other indirect employment opportunities in the city of Vishakhapatnam. It is the first land-based integrated steel plant in India and a producer of long steel products meeting the demands of the construction, infrastructure, manufacturing and automotive industries. This plant was only made after many sacrifices on the part of our people. The people of my state came together for the Visakhapatnam Steel Plant in which 32 people gave their lives. On April 17, 1970, the then Indian Prime Minister announced the government’s decision to establish a steelworks in Visakhapatnam, resulting in the ten-year “Visakha Ukku-Andhrula Hakku” public unrest in the Andhra Pradesh undivided.
I would like to draw your kind attention to the fact that the factory performed well between 2002 and 2015 with profits with positive net worth. The factory pragmatically recovered in 2002 after it was reported to the BIFR as a sick business. The company currently has around 19,700 acres of land and the valuation of this land alone could exceed one lakh crore rupees due to the location of the plant in the urban area and the rapid expansion of the urban sprawl. RINL currently has a capacity of 7.3 million tonnes and recently undertook plant upgrades and capacity expansion, which required the plant to borrow loans from banks to resume expansion. Due to the unfavorable global steel cycle, the company had been posting losses since 2014-2015 and struggling to service the debt. One of the major structural problems which also leads to high production costs is the absence of a captive mine thus affecting profitability.
The factory will become a profitable business again thanks to the support of the Indian government instead of going down the divestment route by implementing recovery measures such as the allocation of captive iron ore mines to reduce input costs, by trading high cost debt through low cost debt converting debt to equity through equity conversion and monetization of vacant land I ask you to consider the following steps for the revival of RINL Visakhapatnam.
Continuation of operations to achieve recovery
As with all sectors of the economy, the steel sector is also experiencing a V-shaped recovery. RINL achieved the highest capacity utilization rate ever of 6.3 MTPA against installed capacity of 7.3 MTPA as of December 2020 and started making a monthly profit of nearly 200 crore INR. Continuing this performance for a further two-year period will dramatically improve the financial situation.
Captive iron ore mine to reduce input costs
Currently, RINL purchases iron ore from the NMDC Bailadila mines at market price. This put RINL at a cost disadvantage of about INR 5,260 per tonne of steel (at the ore level). Many of its competitors have captive mines for over 60% of their needs and only buy the rest from NMDC. Even SAIL has its own captive mines with enough iron ore reserves for 200 years. This extra cost of iron ore has cost implications of over Rs. 3,472 crore for RINL. It is essential to create a level playing field for all players and therefore the allocation of captive mines for RINL will help overcome this cost disadvantage. Orissa is fortunate to have iron ore and the allocation of the captive mine in the state of Orissa will go a long way in reviving the plant.
Financial restructuring
Short-term loans as well as long-term loans could be converted to equity, removing repayment pressures and interest charges. The high cost debt which is actually Rs. 22,000 Cr are serviced at interest rates of up to 14%. The conversion of these loans into equity by the banks in order to completely eliminate the interest charge and the listing of the entity (RINL, Vizag) on the stock market giving the banks the option of exiting through the stock market via the general public can also be explored. These measures could ease the debt service burden and improve financial sustainability.
Monetize land to enrich the business
RINL owns nearly 7,000 acres of unused land. Another action the GoI can take is to monetize this land by way of tracing and sale by RINL itself and the amounts made will make the company cash rich thereby increasing the valuation of the company. The state government would provide all necessary permits for land use conversion to facilitate this intervention.
YS Jagan Mohan Reddy has requested a meeting with the Prime Minister to explain all of the options outlined above, to revive and get RINL back on track. He also mentioned that a multi-stakeholder delegation including union representatives would be brought in so that they could directly share the concerns expressed by the people of Andhra Pradesh, employees and various stakeholders.