Steel Authority of India, which has big expansion plans and a CAPEX of INR 10,000 crore for this year alone, will keep its fingers crossed for demand to revive. In some measure that is already happening. SAIL is also hoping to raise capital from the public. In a recent interview, its chairman, Mr SK Roongta, discussed the giant PSU's plans.
Q - How is the industry doing?
A - Reasonably well. The steel industry has grown by 5.5 per cent in the first quarter which, by global standards, is very good. The previous quarter's growth was 3.5 per cent; so there is an upward curve. And we can expect higher growth in Q3 and Q4 of this financial year since the volumes during those two quarters in 2008-09 were low.
Q - Where is the demand coming from?
A - From a variety of sectors: Construction activity has picked up in semi-urban and rural areas, appliances are also doing well. The auto sector, except heavy commercial vehicles, is doing well too. Some of the infrastructure projects and industry expansions that had been halted are being revived. The Railways are buying but I won't say there is great spurt in their demand.
Q - What's the plan on disinvestment?
A - That's for the Government to decide. One option is the Government disinvests its current holding and takes the money. The other is, we issue additional equity and in the process the Government holding comes down. We would prefer additional equity as it would give us additional funds for our expansion plans.
Q - SAIL is not on the list of companies for disinvestment?
A - We haven't heard from the Government on that yet. Probably the Government's priority right now (you have to check with the Government) is to take up those companies where the public holding is very small.
Q - But only about two per cent of your shares are with the public
A - It's always good for a company like SAIL to have more shares held by the general public, so that they become our direct stakeholders.
As we say, there is a little bit of SAIL in everyone's life; if this is another way, it is welcome.
Q - How are you looking to raise the funds required for your expansion plans?
A - We are looking at long-term debt. This is an ongoing process, and additional amounts will be raised next year too. Our idea is to fund half of our modernization and expansion plans through our reserves and internal accruals of coming years and the remaining half through debt.
Q - How much of the expansion in output can be done purely through modernization?
A - Includes modernization of outdated facilities and replacement of obsolete technology. The third component comes from upgradation of our product mix.
Twenty per cent of our saleable steel is in the form of semi-finished steel, so we are putting up more finishing mills, like the cold rolling mill being added at Bokaro for flat products. So, instead of selling hot rolled products we will be selling cold rolled steel. It doesn't add to capacity but adds to the value of our product.
Q - The ongoing expansion, will it meet its deadline?
A - As per our original expansion plan we were supposed to meet a capacity of 20 million tonnes per annum of hot metal by 2012. Then we tried to add more capacity take it to 26 million tonnes per annum and bring it as close to 2011-12.
We are now undertaking an ongoing expansion that will take capacity to 23 million tonnes per annum by 2012. For the remaining 3 million tonnes per annum we are looking at different options and will proceed with that too. So, instead of our corporate plan to have 20 MTPA by 2012, we will have 23 million tonnes per annum by 2012.
Q - How is the delay in resolving the Chiria mines issue affecting you?
A - The Chiria mines issue is certainly impacting our plans in the sense that we had planned to develop a 7 million tonnes per annum mine in the first stage to take care of our iron ore need for the expansion.
Now, in the interim period we are trying to augment the capacity of existing mines. Right now, we are working on 25 million tonnes per annum to 28 million tonnes per annum of iron ore for our captive use, which we have to take to 36 million tonnes per annum to 37 million tonnes per annum of iron ore, for 23 million tonnes per annum of steel.
Q - What does the Jharkhand State Government want?
A - Its contention has been that we have not used these reserves, so it should be allotted to private players who would invest in the State. But my point is till 2003-04 no one came forward to take these mines. In fact IISCO was one company that was put on the block along with its mining resources and no one bid for it. It's only now, when iron ore has become hot property, that everyone wants these mines.
We are willing to enter into an MoU with the State for a time-bound investment and make a financial commitment if the State government wants it so. We have also got the mining lease for F-block of Rowghat after a long effort of more than 20 years.
The first stage of forest clearance and environment clearance has also been granted, and we also have an MOU with the Railways for laying the 135 km of lines to feed Bhilai Steel Plant. That's a positive development in the matter of raw materials.
Q - Are there any units that the Government is trying to restructure that interest you?
A - We would certainly not be interested in just any non performing unit. But where they have some inherent strength and synergy, but have not been doing well for some historical reasons, we would not mind looking at them.
We have, for example, accepted the merger of Bharat Refractories, which was mainly supplying to SAIL. We are looking at one or two other units, such as a unit of Burn Standard in Salem.
Q - What's the status on the joint ventures with the Shipping Corporation of India and the International Coal Venture Limited?
A - We are finalizing a shareholder agreement for the joint venture with the Shipping Corporation of India. We are a large importer of raw materials, especially coking coal, which we import 10 million tonnes per annum to 12 million tonnes per annum of. This may go up to 16 million tonnes per annum to 17 million tonnes per annum.
Having our own shipping agreement, at least for part of the cargo, will help. And right now, there are enough ships at very competitive rates, so it may be a good time to start this venture.
In fact, this is the best time for the country to build infrastructure. Of course, cement is not that cheap, but steel, copper, aluminium are all cheaper.
Plastics are down to half their peak prices and the best contractors in the world are looking for jobs and are willing to do the job at very competitive rates. A year back we could not hire good contractors because they were so busy.
(Sourced from The Hindu Business Line)
