PSU falls from Rs 1,300-cr profit to Rs 1,573-cr loss

Understandably, Patnaik refuses to be drawn into a controversy, so close to his day of reckoning, electorally speaking that is. So, despite close to a dozen calls to him in Bhubaneshwar over the last ten days, he’s refused to come on the line to discuss the issue which his secretary faithfully noteddown each time.

But if we did manage to get him to talk, chances are, like SAIL’s chief Arvind Pande, he’d also tell us how SAIL’s problems really lie with the high interest burden it has to bear — last year, its interest burden of Rs 1,800 crore and depreciation of Rs 600 crore ate up the entire operating profits of Rs 1,503 crore. There is a proposal to convert the huge loans the government gave SAIL for its modernisation drive — once this is done, the familiar SAIL script runs, SAIL’s interest burden will go down and profits will look up.

Even if you buy this somewhat incredulous argument, what’s inexplicable is why it took so long to get this proposal to the Cabinet for clearance — according to SAIL officials, the proposal got stuck in the pre-election code of conduct. Now surely such delays are unpardonable for a ministry which essentially has been set up to look after one PSU.

SAIL executives will also tell you, and not totally unjustifiably, that world prices of steel collapsed last year andthat’s something that they could do nothing about. True, but that’s just one part of the problem.

A more serious and fundamental problem lies in the genesis of SAIL’s massive investment binge of Rs 13,000 crore during 1991-92 at Rourkela and Durgapur during 1996-97. When the investments were being planned, the demand growth estimates were way off the mark. That’s where both SAIL and the ministry of steel went totally wrong. In 1991-92, they projected a demand of 37 million tonnes — 31 million of this was to come from the domestic market and 6 million from the global market. Last year, demand was a mere 25 million tonnes, including the 2 million tonnes that was exported.

Because of these high projections, when SAIL’s current chief was heading its corporate planning group, SAIL created an additional capacity of 10 million tonnes between 1992 and 1996. By contrast, TISCO created only 2 million, the Jindals added 1.6 million, Ispat 1.2 million and Lloyd’s 0.5 million.

The fact that demand never took off asprojected, according to SAIL officials, the yield — the profit on sales — grew by only one percentage point a year as against an expected 4-5 per cent. It didn’t help that, apart from the global depression, there was dumping from some CIS countries over the last year.

Worse, for SAIL, it missed out on the boom in the white goods sector as well since it concentrated more on improving the quality of its steel, but didn’t pay enough attention to its rolling mills. And, as is the problem will the entire public sector, SAIL is hopelessly over-staffed – according to latest estimate the company has a surplus staff of about 70,000 on its roll – and also has to incur huge losses on running of the former privately-controlled IISCO — the proposal to modernise IISCO has been stuck for over 10 years now. Till date, SAIL has routed more than Rs 2,000 crore to IISCO by way of loans and advances. There are no returns from this investment and SAIL has been incurring losses on this investment every year which is reflectedon its balance sheet. For instance, it lost Rs 397.3 crore in 1997-98.