Vizag Steel: A dramatic turnaround
9 min readPrivatisation has been a long-avowed ambition of the Narendra Modi authorities throughout two phrases, expressed early on within the catchy slogan, ‘minimum government, maximum governance’. That undertaking has produced blended outcomes, with the federal government falling embarrassingly in need of targets, a lot in order that it has significantly scaled down its disinvestment ambitions to extra achievable, life like ranges this price range. But what if this very risk of privatisation spurs an enterprise to do higher, respiratory new life into an previous argument—of promoting the household silver?
This is exactly what appears to have occurred with Rashtriya Ispat Nigam Limited (RINL), or Vizag Steel, as it’s popularly identified. On the block for privatisation, India’s first shore-based, state-owned steelmaker introduced its best-ever efficiency since its inception in 1982 this April 1. RINL recorded gross sales of Rs 28,008 crore within the just-concluded monetary 12 months, a progress of 56 per cent over the 12 months earlier than. Its revenue earlier than tax was Rs 835 crore in FY22, as its chairman and managing director (CMD) Atul Bhatt revealed. The firm has produced 5.773 million tonnes of sizzling metallic, 5.272 MT of crude metal and 5.138 MT of saleable metal. It additionally notched up the all-time export gross sales of Rs 5,607 crore, a progress of 37 per cent over the earlier monetary 12 months. And this, within the face of a raging pandemic, acute scarcity of worldwide coking coal and the looming risk of privatisation.
The dramatic turnaround of the central public sector enterprise (CPSE), which enjoys Navaratna standing, is a vindication of what its employees have been demanding in a concerted marketing campaign—give them an opportunity to show issues round. Helping their trigger is the truth that the method of privatisation—helmed by the Department of Investment and Public Asset Management (DIPAM) in live performance with transaction advisors EY and authorized advisor Chandhiok & Mahajan (who had been picked up from among the many bidders final September)—has not made a lot headway, although the Cabinet Committee on Economic Affairs had put RINL up on the market on January 27, 2021.
A POLITICAL DEMAND
Meanwhile, political rivals within the state—excluding the BJP, after all—are united of their demand that the federal government rethink disinvestment and roll again its plan. Andhra Pradesh chief minister Y.S. Jagan Mohan Reddy, who heads the ruling Yuvajana Sramika Rythu Congress (YSRC), has discovered widespread floor with rival N. Chandrababu Naidu and his Telugu Desam Party (TDP) on the topic. If in 1966, the state authorities of the day had handed a decision within the meeting urging the Union authorities to arrange the metal plant, final September the present YSRC regime adopted a decision towards privatisation. The celebration believes RINL bumped into big losses not due to its failure to promote its merchandise however due to mismanagement, large-scale corruption and the obvious apathy of the Union metal ministry in checking losses once they had been manageable.
Jagan Reddy himself has written twice to Prime Minister Narendra Modi about retaining RINL as a CPSE. He has prompt a number of ‘turnaround measures’ for RINL to change into worthwhile with assist from the GoI as an alternative of disinvestment. These embrace allotting captive mines to cut back enter prices, swapping high-cost debt with low-cost borrowings and changing debt into fairness. In his letter dated March 9, 2021, Jagan reminded the Centre how RINL has had run since 2002 after being referred to the BIFR (Board for Industrial and Financial Reconstruction) as a sick unit. It had elevated capability to 7.3 MT by 2019. The 19,703 acres it owns is value greater than Rs 1 lakh crore. Highlighting how the CPSE has been posting a month-to-month revenue of about Rs 200 crore since December 2020, the Andhra CM has predicted that will probably be out of the woods in two years.
RINL had been debt-free by FY2011. However, its need to change into the most important single-location plant by 2032 noticed it going for a 10-year Rs 22,500 crore debt plan for the reason that Union authorities was unwilling to offer any funds for the growth. That debt is being serviced at 14 per cent, with curiosity funds consuming into RINL’s earnings.
Employees’ unions, below the banner of the Visakha Ukku Parirakshana Porata Committee (VUPPC), have spearheading the agitation towards privatisation. They have stored up a slew of protests, together with one at Jantar Mantar in Delhi final 12 months and a relay starvation strike camp at Kurmannapalem, in RINL’s neighborhood, that entered its 376th day on April 11. “We will continue our fight until the Union government rolls back the disinvestment decision,” says Ch. Narasinga Rao, VUPPC chairperson and state president of the Leftist CITU (Centre of Indian Trade Unions).
“RINL will scale greater heights with rejuvenated teamwork in the future,” says an optimistic Bhatt, commending “the entire RINL fraternity for its commitment and outstanding performance”. The staff’ collective too are decided to scale up manufacturing and earnings and took a pledge in November 2021 to that impact. “Vizag Steel is not just any other steel plant,” says Mantri Rajasekhar, a nationwide secretary of the Indian National Trade Union Congress (INTUC) in addition to an YSRC chief. “It’s wrapped in the sentiments of the people of Andhra. It is the outcome of an agitation in which 32 persons sacrificed their lives in November 1967.” It would take 16 years extra for RINL to come back up in 1982, following a folks’s agitation that started in 1966 across the emotive plea of ‘Visakha ukku, Andhralu hakku (Vizag Steel is Andhra’s proper)’. The then prime minister Indira Gandhi needed to make an announcement in Parliament to assuage the sentiments of the Andhra legislators who had threatened to resign en masse.
A CASE OF MISMANAGEMENT
YSRC parliamentary celebration chief V. Vijayasai Reddy, a chartered accountant, blames poor administration for RINL’s funds going into the purple. “The financial irregularities of an earlier CMD and bad investments such as the one for a forged wheel factory at Raebareli in Uttar Pradesh are among the factors that pulled it down,” he says, pointing to funds diversion and embezzlement totalling greater than Rs 5,000 crore. He additionally laments that little was carried out to construct on RINL’s strengths. The GoI, he provides, has invested solely Rs 4,900 crore in RINL, which has paid again Rs 45,000 crore within the type of taxes alone since 1993. This just isn’t together with the belongings, reminiscent of the large land financial institution and equipment value Rs 3 lakh crore. “Privatisation, in the RINL case, would be unjust, unfair and against the interests of the nation,” says Reddy, who’s petitioning the Centre and has mobilised the signatures of over 120 fellow MPs.
“It is ironic that the GOI prefers to allot iron ore blocks to private companies, exports good quality iron ore to Japan and South Korea but starves RINL of domestic iron ore”
– E.A.S. Sarma, ex-Union Finance Secy
Former Union finance and vitality secretary E.A.S. Sarma, who returned to his hometown Vizag after retirement, has lengthy tracked the evolution of the metal plant. “RINL is a profitable CPSE with highly skilled personnel comparable in professional competence to anyone else,” he says. “Had the GoI allotted it a captive iron ore mine, its profitability would have increased manifold. It is ironic that the GoI prefers to allot iron ore blocks to private companies, exports good quality iron ore to Japan and South Korea but starves RINL of domestic iron ore.” Iron ore from the mines of the National Mineral Development Corporation (NMDC) in Bailadila and contiguous areas in Chhattisgarh, introduced by rail, go by means of Visakhapatnam for export. For need of a captive mine, RINL buys ore from NMDC at market costs, incurring a lack of Rs 5,000 per tonne on the again of heavy borrowings. The Union metal ministry, on its half, contends that RINL is in deep loss, productiveness is low and allotment of captive mines can not assist pull it out of its monetary mess.
Sarma has written to each PM Modi and the Union finance minister Nirmala Sitharaman towards the privatisation bid, citing plenty of infirmities and points. To start with, he holds justifying privatisation in order that it could yield “additional fiscal resources” to the federal government as problematic, as a result of what a personal bidder can pay not directly for RINL will movement from the identical pool of financial savings within the financial system from which the federal government can borrow immediately. Taking the disinvestment path to get the sources is way extra disadvantageous, as the federal government will obtain nothing greater than shedding possession of a extremely worthwhile asset, when it could borrow the identical sources immediately from the market on extra advantageous phrases on the idea of its personal sovereign score.
Prima facie, Sarma deems privatisation as unlawful because it violates the welfare mandate below the Constitution. CPSEs like RINL are entities arrange below Article 19(6)(ii) of the Constitution—learn with Article 12, they’re “arms” of the State that fulfil the “welfare” goals specified by the Directive Principles. In addition, below Article 16, they supply reservation for Scheduled Castes and Tribes, in addition to Other Backward Classes, offering them not simply employment alternatives but additionally empowerment, because the apex courtroom has emphasised in its orders repeatedly. Privatisation, Sarma says, is a backdoor ploy successive governments have adopted to renege on their constitutional obligation. Given that the disinvestment mannequin has no safeguard for the workers, RINL’s privatisation will plunge the lives of 35,724 present staff (together with 17,566 SCs/ STs/ OBCs) into uncertainty.
Land, a monetisable asset, is one other space of competition. More than 50 years in the past, over 20,000 acres of fertile tract was acquired for RINL below Section 3(f)(iv) of the erstwhile Land Acquisition Act, 1894, for “public purpose”, outlined then as “provision of land for a corporation owned or controlled by the State”. Given that the acquisition was primarily based on the premise that there might be no change within the possession of the CPSE, privatisation, says Sarma, is a violation. The acquired land ought to then revert to the state authorities, which initially invoked its authority below the Land Acquisition Act. Either alienating the land by means of privatisation to a personal firm or “monetising” it in every other type might be a breach of belief so far as the unique land house owners are involved, says Sarma. Both the state and the farmers must be totally compensated for it.
The central authorities’s resolution to privatise RINL can be being seen as unilateral and blatantly violative of federal norms. It was united Andhra Pradesh that acquired the land for RINL, nurturing auxiliary industries round it and sustaining a harmonious labour atmosphere. The state, subsequently, sees itself as a stakeholder. As such, the difficulty of its privatisation ought to have been mentioned each in Parliament and the meeting. The folks of Andhra and RINL’s staff too ought to have had a say.
A History Of Turnarounds
When the difficulty of RINL’s privatisation first got here up in 2000, within the wake of constant losses, the then Atal Bihari Vajpayee determined to show it round and prompt that loans be transformed into fairness. RINL additionally developed new merchandise, new area of interest markets, negotiated an rate of interest discount, had penal pursuits waived, pay as you go scheduled principal quantities, availed decrease curiosity merchandise towards working capital and bought a GoI assure for working capital loans. The outcomes began exhibiting quickly sufficient, with RINL changing into debt-free by repaying all long-term debt in 2003-04. It has had solely three loss-making years since that fiscal intervention.
Having been there earlier than, RINL believes it could do it once more—flip the corporate round by writing off the debt and stay a state-owned entity. The guide worth of the 19,703 acres at the moment below RINL’s possession however held within the identify of the President of India is a mere Rs 55.82 crore towards the estimated market worth of Rs 1 lakh crore. RINL’s ex-CMD Y. Siva Sagar Rao and former CBI joint director V.V. Lakshminarayana counsel that at the least 16,872 acres be transferred to RINL in order that the corporate’s balance-sheet turns into strong and improves its credit standing enabling RINL to boost extra loans from the market at aggressive rates of interest. The remaining 2,830 acres will be explored for additional industrial growth, which can fetch RINL round Rs 9,000 crore. Meanwhile, RINL itself will try monetary restructuring to enhance its backside line. There are additionally recommendations that RINL be merged with NMDC and Steel Authority of India Limited to construct a state-owned conglomerate like within the petroleum sector.
RINL also can be taught from the current turnaround of Fertilisers and Chemicals Travancore (FACT) Limited, India’s first large-scale fertiliser plant, in Alwaye, Kerala. The PSU monetised land holdings and utilised funds to clear money owed and deal with the scarcity of working capital earlier than offering capital for capability growth. Having carried out this over the previous three years, FACT is now making ready to reinforce fertiliser manufacturing, improve logistics and enhance market share.
Andhra’s fervent hope is that RINL’s efforts will compel the GoI to assessment its rationale. A reversal of the choice might be a win-win for Jagan Reddy, who’s hoping to develop Visakhapatnam because the state’s government capital, a part of his decentralised tri-capital plan. n
