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Forging mergers: SteelMin’s answer to rising competition

The steel ministry is exploring mergers of some of its units so that the companies can have adequate financial wherewithal to upgrade their operational ability.

Written by Priyadarshi Siddhanta | New Delhi | Updated: June 3, 2015 2:48:28 am
The ministry says that the merged entities would have adequate financial wherewithal to upgrade their operational ability and withstand the growing competition from their domestic and overseas peers. The ministry says that the merged entities would have adequate financial wherewithal to upgrade their operational ability and withstand the growing competition from their domestic and overseas peers.

The steel ministry is exploring mergers of some units under its control to synergise their operations and ensure their turnaround and survival. The ministry says that the merged entities would have adequate financial wherewithal to upgrade their operational ability and withstand the growing competition from their domestic and overseas peers.

The ministry has eight companies under its administrative control which include steel makers Steel Authority of India Limited (SAIL) and Rashtriya Ispat Nigam Limited (RINL) and miners like NMDC Limited and Manganese Ore India Limited. Besides, these it has Karnataka-based Kudremukh Iron Ore Company Limited (KIOCL), Hindustan Steelworks Construction Limited (HSCL), Metallurgical Consultants (MECON), Mineral Sales Trading Corporation (MSTC) and Ferro Scrap Nigam Limited (FSNL). Considering that steel is part of the infrastructure sector, the mergers of some steel PSUs is being explored before planning similar mergers of government-run firms in other sectors.

Since such mergers of steel PSUs should be a seamless exercise and have the desired outcome, the steel ministry is set conduct a study to assess the viability of the move and have a clear picture of the possible hurdles. “We are examining the viability of mergers of the smaller state-run companies under the steel ministry. A study would be commissioned to assess this possibility. Once we have a clear picture, we can decide further course of action,” steel minister Narendra Singh Tomar told The Indian Express.

The move also comes amid concerns expressed by the Parliamentary committee on coal and steel earlier this month that smaller PSUs incur huge non-plan expenditure as all provisions like infrastructure, salary, bonus and incentives have to be paid to their staff. Elaborating further, a senior steel ministry official said that the functions of these small firms like MSTC, FSNL are inter-related in many ways.

Sources said that there is a fair possibility of merger between the ministry’s mineral trading arm MSTC and FSNL.

Firstly because MSTC holds 100 per cent equity of FSNL and the latter’s amalgamation with MSTC would not be a major issue. Secondly, FSNL is into selling of scrap, which MSTC can sell as it is also in the business of e-commerce.

“However, without rushing into such mergers, we want to further examine this factoring into account the desirability, shareholding pattern, functions and their other aspects. Once we have a clear picture, we would take the finance ministry’s views in this regard,” the official said.

But once such mergers happen then the merged entity would be expectedly better positioned to have an integrated approach in production and marketing their output, he reasoned.

This cautious approach, the official said, has a basis because the erstwhile UPA regime had tried to promote merger between NMDC and KIOCL, but it did not happen owing to diverse reasons.

Similarly, the UPA government in its first term mooted the merger of HSCL with SAIL, which also did not happen owing to reluctance of SAIL. Although the Geological Survey of India and Mineral Exploration Corporation Limited are into the business of mineral exploration, yet their merger cannot happen, a mines ministry official said.

As on March 31, 2014, there were 290 Central Public Sector Enterprises (CPSEs) consisting of 234 operating and 56 under construction.

The turnover of all 234 operating CPSEs during 2013-14 stood at Rs 20,61,866 crore as compared to Rs 19,45,814 crore of 230 operating CPSEs in the previous year, according to the latest PE Survey of the department of public enterprises (DPE).

Overall net profit of all 234 CPSEs during 2013-14 increased by 12.29 per cent to Rs 1,29,109 crore.

The reserves and surplus went up by 9.99 per cent to Rs 7,51,350 crore in the said fiscal as compared to the previous fiscal. Out of 234 operating CPSEs, 71 have reported losses in 2013-14 as against 78 CPSEs in 2012-13, according to the survey.

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