Even as Andhra Pradesh politicians raise voices against the 100% divestment in Rashtriya Ispat Nigam Limited (RINL), the holding company of Vizag Steel Plant (VSP), sources inform SteelMint that there are strong rumblings within the company itself against the sale.
No official statement is forthcoming but the buzz is that there are possibly two options that company insiders are amenable to.
One is that the PSU itself would not mind a 10-20% divestment since such a move could increase efficiency but it was not open to a 100% sell-off.
A source said RINL is a “golden goose” at present and an extremely good buy for any large private sector steel player since it has completed its expansion and has even crossed 20,000 tonnes per day of hot metal output several times because of its ramped-up production. “If the PSU gets a constant supply of raw material, it can repeatedly touch 21,000-22,000 tpd at 7.3 mntpa. It can be an extremely good source of revenue for the Government of India,” the source said.
The source further said, if an iron ore mine is allocated to it or even if OMDC’s mines start producing, RINL can indirectly source from these mines and “that process is going on”. “When these go into production, RINL can have a steady supply of raw material and profit will come indirectly as a shareholder”. It may be recalled that RINL had bought stakes in OMDC at an investment of around INR 361 crore a decade back. The subsidiary is slated to start mining operations at all three mines, Bagiaburu (iron ore), Belkundi (iron ore and manganese ore) and Bhadrasahi (iron ore and manganese ore), following a Supreme Court order.
Arguing against calling RINL “loss-making”, the source said that the PSU has given the Government of India (GoI) INR 45,000 crore in these last 30 years as direct and indirect taxes and is continuing to do so, whereas the government has invested only INR 5,000 crore since its inception.
“RINL is not a loss-making concern anymore. Last December, its operating profit was INR 200 crore. It also needs to service its debt. If the PSU gets a support of INR 5,000 crore from GoI then it can be revitalised. From the book-keeping point of view, yes it is showing a loss. But the plant is located in the richest revenue generating area in the entire Andhra Pradesh. It owns 20,000 acres of land at present and the steel plant is attached to a mega city which is the executive capital of Andhra Pradesh in a sense. If the present market value of the land is INR 5 crore per acre then RINL commands INR 1 lakh crore alone for the land it owns. Secondly, its plant and machinery are worth another INR 1 lakh crore. So, its total worth is more than INR 2 lakh crore. However, the balance sheet does not exactly show these details – the cost of land is kept at say INR 10-20 lakh per acre at best as per government records,” the source informed.
The source added that the government is getting 70% of the revenues generated, in direct and indirect, form and that in the present pay scale and tax structure average employees pays INR 4-7 lakh to the government exchequer every financial year.
POSCO JV
The second option that employees are keen on is a 50:50 joint venture with POSCO, details of which were recently revealed by Steel Minister Dharmendra Pradhan in reply to questions asked in Parliament by V. Vijaysai Reddy, Member of Parliament, Rajya Sabha, and Chairman of the Parliamentary Standing Committee on Commerce, Parliamentary Party Leader and National General Secretary of YSR Congress Party. In response, Minister Pradhan said that POSCO had evinced interest in setting up a steel plant in Visakhapatnam on RINL’s land. A non-binding MoU had been signed in October, 2019 between RINL and POSCO. Pursuant to the MoU a joint working group (JWG) had been formed for exchange of information. The shareholding pattern has not been determined at this stage but, as per the MoU, POSCO wishes to own at least 50% shareholding while the shareholding of RINL would be worked out on the basis of the valuation of RINL’s in-kind contribution of the land for setting up the plant.
The minister further said a joint team of POSCO and Hyundai, along with the Ambassador of South Korea, had visited RINL, Visakhapatnam, participating in meetings with representatives of RINL, NMDC and the Ministry of Steel in July and September, 2019 and February, 2020 in connection with setting up the plant.
A source said that there are several benefits if the JV materialises. One is that the plant would be set up on land that cannot be cultivated and the best possible way to unlock its value is through industrial use. Secondly, the plant will manufacture special grade steel required in the automobile industry, which is imported at present. Thirdly, it would generate employment in the region.
It seems the JV is proposed on 3,000 acres of RINL land at an estimated investment of INR 30,000 crore.
~By Madhumita Mookerji
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