Revive Visakhapatnam steel plant respecting popular sentiment
Rashtriya Ispat Nigam Limited (RINL), the corporate entity of Visakhapatnam steel plant (VSP) is the largest public-sector industrial unit in the state creating employment opportunity for close to around 20,000 people directly and to an equal number indirectly
Rashtriya Ispat Nigam Limited (RINL), the corporate entity of Visakhapatnam steel plant (VSP) is the largest public-sector industrial unit in the state creating employment opportunity for close to around 20,000 people directly and to an equal number indirectly. The central government decision to privatise the Vizag Steel Plant came as rude shock not only for those who are directly and indirectly dependent on it but also to the common public of the state. It is one of the crown jewels of Northern Andhra Pradesh.
The Steel Plant is spread over 33,000 acres of land and its township with lush green foliage, places of worship and community centres, is home to 8000 employees. There is a strong Telugu sentiment around the steel plant, which is the pride of Andhra Pradesh. The Centre's decision to privatise came at a time when the RINL has achieved the highest ever capacity utilisation of 6.3 MTPA against the 7.3 MTPA from December 2020 and started making a monthly profit of close to Rs 200 crore. The Centre has proposed to divest 100 per cent of its share in this 'Navratna' plant to private parties, with 50 per cent divested in favour of a foreign company.
Indira Gandhi decided against setting up a steel plant in Vizag despite an Anglo-American consortium's recommendation in 1966. The people led by veteran leaders like late Sri Tenneti Viswanatam and others launched a protracted and historical struggle in which thousands of students, workers and commoners participated across the state. 12 unarmed persons including minors were killed in police firing. Owing to the popular pressure,66 MLAs and seven MPs including Congress legislators resigned.
The mighty Indira Gandhi was compelled to finally announce the establishment of a steel plant at Visakhapatnam in 1971. However, the central government allotted Rs 1000 crores to the plant only in 1978, due to the concerted efforts of Janata Party leaders Tenneti Viswanatham, P V Chalapati Rao and N S N Reddy. Due to the apathy of the Congress government, after inordinate delay, the steel plant finally started functioning only in 1990.
In the protracted and historical struggle for the steel plant 32 persons sacrificed their lives. For the plant, 22,000 acres of land was acquired and people living in 64 villages were evacuated. While acquiring land, the government issued Rehabilitation Card to each displaced family that entitles the family to monetary compensation and a job in the plant, which is suitable to their qualification. It is saddening to note that an estimated 50 percent of the land donors have yet to get a job, while some are still struggling to get compensation against the land given.
The memories of that historical struggle in which several sacrifices were made - land, villages, and even lives — that makes the privatisation of Vizag Steel an emotional issue for the Telugus. Hundreds of family members of farmers, who gave up their cultivable lands for the sake of building a huge public sector steel plant with the hope of a better future for their next generations and other displaced and dispossessed people are protesting privatisation move.
The plant was set up with an initial central outlay of Rs 5000 crore. Subsequently, the government of India which has 100 percent stake in the plant neither invested a single rupee in the last 25 years nor provided any tax reliefs or subsidies. Normally, even newly started private units are being provided incentives by way of subsidies and tax reliefs. Despite this, the steel plant paid over Rs 40,000 crores in the form of dividends and taxes since its inception.
Due to step-motherly attitude of the central government towards the steel plant, it was forced to borrow to finance for its expansion. It would have never incurred losses if the government had ploughed back even a fraction of fiscal resources that it extracted from the steel plant for its expansion plan. Repeated requests for financial support were never heeded forcing the plant borrowing at high rates of interest.
VSP was debt-free before it started its expansion in 2011 with a 10-year Rs 22,500 crore debt plan. The interest payments on this huge amount of debt are crippling the plant financially. The Ministry of Steel, the legal owner of the plant never bothered about the reports of corruption and nepotism, caste and regional politics, declining work culture, indiscipline and mismanagement and allowed the situation to deteriorate rapidly raising doubts about the intention of the government whether it deliberately allowed VSP to become sick to sell it away.
The VSP has the dubious distinction of the only steel-manufacturing PSU without captive mines. While the raw material expenditure of SAIL and Tata Steel, which have captive mines, is 48 and 35 per cent respectively of the total cost, it is as high as 65 per cent for the VSP. Again, repeated requests for allotment of captive mines fell on the deaf ears of the Steel Ministry!
The absence of a captive mine naturally leads to a high cost of production thereby adversely affecting the profitability of the plant. While Private players in the steel sector like Tata, Mittal, Adani were allotted captive iron ore mines, what prevents the central government to allot captive iron ore mines to its own VSP? Even the recommendations to this effect by Parliamentary standing committees have not been adhered to.
Though VSP paid over Rs 360 crores to the Odisha Mining Development Corporation over ten years ago to acquire mines, not even a single ton is extracted until now. The price of iron ore skyrocketed due to continued exports of ore to Japan in the past and to China in recent times. The plant has been incurring huge expenditure annually due to an abnormal rise in iron ore prices. Expecting a company to run profitably without a level-playing field is like asking someone to run after tying up their legs. It was systematically let down by not being allotted a captive iron ore mine and by allowing steel imports on a large scale. The cheap imports from China, Japan, Korea, etc. have adversely affected the domestic steel sector in general and VSP in particular.
Disinvestment programmes are bound to be counter- productive in recessionary periods like present times. The private investment would go safe investment lines. Private sector is interested in VSP because of its vast land in its possession which valued at current market price would fetch more than one lakh crores.
Vizag Steel is a Navaratna company and one of India's largest steel-making plants, and the only plant located strategically in the east coast. As mentioned by Chief Minister YS Jaganmohan Reddy in his letter to Prime Minister Narendra Modi, the plant had a good performance between 2002 and 2015 earning profits with a positive net worth. Owing to the unfavorable steel cycle globally the company was making losses since 2014-15 and was finding it difficult to service the debt.
In a similar situation in the past, the Vajpayee government rescued the plant by converting the debt of VSP into equity. With that, the plant paid back all its long-term debts in 2003-04. It has had only 3 bad years since the Vajpayee government's fiscal intervention. The Modi government must consider injecting fresh capital and allocating captive mines to VSP. It may not be prudent to privatize the Visakhapatnam steel plant which has a massive asset base.
Based on the performance of last three years alone, privatising is neither sound economics nor good politics ignoring the sentiments of lakhs of people of Andhra Pradesh. Privatisation must only be considered when a PSU incurs losses continuously for several years.
(The author is Professor of Economics (retd), Machilipatnam)