Faced with acute operational and liquidity crisis during the prevailing period of shutdown and apprehensive of the critical situation likely to arise post lockdown, the Odisha Sponge Iron Manufacturers’ Association has appealed to the Ministry of Steel for redressal of pressing problems besetting the 85-odd sponge iron plants and secondary steel units in Odisha of which 70 have a capacity of more than 200 tonnes per day.
In a letter addressed to Union Steel Minister Dharmendra Pradhan, the association has urged the government to take up a clutch of proposals for discussion with different ministries as the “situation will become more difficult once the lockdown is lifted… Not only inter-state but intra-state migrant workers will go away to their homes creating acute shortage of working hands at industrial hubs. This is likely to continue for next 2-3 months affecting the industry at large.”
Cash Relief
The association places the following proposals for urgent consideration to ease the liquidity crisis: a) suspending deduction and payment of provident fund of (both employer and employee) under EPF Act for one year to improve cash in hand of employees and compensate employers; b) converting the interest for March-June quarter into working capital term loan to be paid during 2021-22 and charging the interest during the lockdown period at cost of funds to the banks as servicing of loans during the “prolonged lockdown will be a body blow to the industry”; and c) granting additional 20% of the existing working capital limits as short term working capital loan against existing primary security before lifting of lockdown so that the industry is able to restart operations expeditiously.
Coal Concerns
These apart, the association has urged the INR 400 cess on domestic coal to be withdrawn or given as input credit which will “help the steel and sponge iron industry reduce its cost of production.” It has urged Pradhan to take up with the Ministry of Coal the issue of directing Coal India Limited (CIL) to keep the reserve price of coal sold by various e-auctions for both the regulated and non-regulated sector at notified price for entire FY 21 instead of only up to September 2020 and remove premiums for FSA supplies under linkage auctions either by road or by rail that are quite steep over and above the notified price.
“The sponge iron industry will not be able to bear such high premiums at this time,” the letter states, and “it will be forced to lapse the allotted quantities resulting in increased coal stocks with CIL and heavy penalties for the industry due to non-lifting of the allotted quantity of coal.”
Duty on Pellets?
“The sponge iron sector must be assured of availability of iron ore at a reasonable price particularly in view of stoppage of a number of mines in Odisha which have been auctioned recently at illogically high premiums,” the letter states.
According to YK Dalmia, Chairman of Odisha Sponge Iron Manufacturers’ Association, this is likely to adversely affect supply of iron ore particularly to the sponge iron Industry. “We apprehend such shortage is likely to inflate prices to unrealistic levels as have been observed in the past,” he says. The association has proposed to the Ministry of Steel that the Odisha Mining Corporation (OMC) should supply to only Odisha-based plants and distribute sized ore as per plant capacity.
“Since a number of mines that were supplying sized ore to the local industry have been auctioned off to captive users, shortage of sized ore is likely to occur. This shortage can be met only through pellets. In one of its representations to the Ministry of Commerce, the Pellet Manufacturers’ Association of India has categorically mentioned that consuming iron ore fines by the pellet industry optimizes the utilization of such ore, decreases the pollution load on the environment, acts as a substitute for iron ore lumps and generates more employment and revenue for the country. So pellets should be treated at par with sized ore for export duty because the domestic industry faces shortage of sized ore and pellets should be available at reasonable prices,” contends Dalmia.
“One immediate fallout of our video conference with the steel minister and the subsequent letter is that a conference with stakeholders has been fixed to sort out issues related to coal. Frankly, at a time when the government is losing huge revenue due to the lockdown we don’t expect that all our proposals would be considered liberally, for example reducing the interest rate by 3% subject to minimum of bank rate till end of FY 20. But iron ore scarcity for domestic MSME producers is a long-term issue. Some new owners who have bagged mines in the recent Odisha auctions are withholding payment citing the force majeure clause during lockdown. Eventually it will be unsustainable for some of them to hold on to the mines considering the absurdly high premiums,” says Dalmia.
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