Debt weighs heavy on Salem Steel Plant

Salem Steel Plant (SSP) that pioneered supply of wider width stainless steel sheets and coils in the country stares at an existential crisis with the Public Sector Undertaking (PSU) posting losses continuously for the past several years.

Unable to lift the PSU from financial losses, the government has begun the process to put the steel plant under the hammer along with Visvesvaraya Iron and Steel Plant (VISP) in Karnataka and Alloys Steel Plant (ASP) in West Bengal as part of its ‘Strategic Disinvestment’ Plan. Though the tenders were floated in July this year, it is understood that no prospective buyer has come forward forcing the Union Government to revise the terms and conditions to make the offer more attractive.

Once a crown in SAIL’s glory attaining the status of Special Unit, SSP that holds the Asian record for fastest ever commissioning and production of steel is now in disarray though it still produces more than two lakh tonnes of high-grade stainless steel, every year.

At its peak, SSP was the first to roll out the required amount of steel for producing the country’s first stainless steel coin in the form of Re 1 and Rs 2 coins and even while it is struggling to survive, the PSU-made special-quality stainless steel was used in India’s second lunar mission, Chandrayaan-II. The steel plant is also the country’s first top-of-the-line stainless steel blanking facility.

Repaying of interest and the principal amount of the loans availed from various sources, no minimum import price for steel, a reduction in the quantity of steel supplied to Indian Railways and abolishing of a separate marketing department are some of the reasons cited by employees for the plant’s current condition.

The strength of the PSU which had 1,650 employees on its rolls and a few hundred on contract when it began operations in 1981 has come down to 950 and more than 1,000 employees on contract. This is on account of the superannuation of its older staff. The total production capacity has seen an increase from 32,000 tonnes every year in 1981 to 3.6 lakh tonnes presently.

While justifying its decision to divest its 100% stake, the Union Government puts SSP’s financial losses at more than Rs 2,000 crores despite pumping in hundreds of crores of rupees to revive the plant – it also says the losses are despite taking up of modernisation twice to accommodate the backward integration process.

However, employees, who are against privatisation, say the financial losses are due to the modernisation process, that incurred a huge expenditure of Rs 2,500 crore, and not despite it. While a new project was installed for the hot-rolling mill to supplement the cold rolling mills in 1993, steel melting shops were installed in 2010.

While the government maintains that the SSP has failed to revive despite modernisation and pumping in of huge sums of money, employees say the losses have been exaggerated since the government is hell-bent on selling the unit. 

“The government has invested Rs 3,200 crore in SSP since its inception in 1981. The latest modernisation process took place in 2010 and the steel melting shops began production in 2011. The modernisation was taken up at a cost of Rs 2,500 crore of which Rs 1,500 crore was through loans at 10%. The earnings from the production is being used to pay the loans,” P Panneerselvam, president of Steel Plant Employees’ Union of Salem affiliated to CITU, told DH.

The company’s finances also paint a picture bolstering the government’s claims, though there have been efforts to revive it financially. While SSP posted loss of Rs 461.29 crore in 2015-16, it came down to Rs 234.99 in 2016-17 and to Rs 211.07 in 2017-18. However, the losses grew to Rs 259 crore in 2018-19 fiscal, according to the annual reports of SAIL accessed by DH. Sources said the company has so far paid more than Rs 750 crore as interest since 2011.

Though SSP chose not to respond to a detailed questionnaire sent by DH, sources said the company was sourcing scrap sister plants of SAIL on interplant transfer basis, mulling setting up of a stainless-steel economic zone and installation of ground-mounted solar power plants as part of its revival plan.

The company, employees say, spends more than Rs 120 crores every year only to pay interest for the loans secured for the modernisation process. “ A chunk of the profit goes into paying the loans. When the PSU is paying back the loans it got on its own, how can you term it a loss-making unit and divest it?” another trade union leader, who wished anonymity, asked.

“The SAIL has invested more than Rs 60,000 crore to Rs 70,000 crore in plants like Bokaro and if we consider the amount spent there, Rs 2,000 crore is minuscule. Why is SSP being punished for no fault of the employees?” Panneerselvam asked.

Workers also apprehend massive layoffs once the SSP goes to a private player. Employees said they have been told that once the disinvestment process is over, they will be on the rolls of the new firm for three years on deputation.

After three years, only 50% of the staff will be absorbed by SAIL and the rest 50% will have to be at the mercy of the new owner, they said.

The SSP came under the disinvestment radar of the NDA dispensation in 2016 with the Union Government according to ‘in-principle’ approval for Strategic Disinvestment of three units of Steel Authority of India (SAIL).

Though the government moved almost immediately with appointing legal, financial and transaction consultants to ahead with the disinvestment, the process was halted for a few months due to protests from the Tamil Nadu government and the approaching elections.

After Prime Minister Narendra Modi got a renewed mandate in May this year, the government swung into action immediately and floated the tender for selling its full stake in SSP.