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AP: CM YS Jagan’s letter to PM once again on issue of Visakhapatnam Steel Plant

Visakhapatnam Steel Plant (RINL) – Reply of Smt. Nirmala Sitharaman, Union Minister for Finance, in parliament on 8-3-2021 regarding 100% strategic disinvestment by way of privatization – Request for Appointment at an early date for personally explaining the options to revive and meeting an all-party delegation led by me to express the concerns directly – Reg.
Sir, Kindly recall that in my letter dated 06-02-2021 addressed to you I had clearly mentioned the problems being faced by Rashtriya Ispat Nigam Limited (RINL), Visakhapatnam, suggested various solutions to revive the same and requested to reconsider the decision of 100% strategic disinvestment. I had also addressed the union Minister for steel offering my suggestions to revive RINL and make it financially strong.

In the meantime, Hon’ble Union Minister for Finance, Smt. Nirmala Sitharaman in her reply in the Lok Sabha on 08-03-2021 stated that the Govt of India would go ahead with the plan of 100% disinvestment of Govt of India`s equity in RINL along with RINL`s stake in subsidiaries / joint ventures through strategic disinvestment by way of privatisation. It is a matter of great concern for the people of Andhra Pradesh, Employees of RINL and other stakeholders.

I would like to bring to your kind notice once again the importance of reviving RINL, it`s association with the sentiments of the people of Andhra Pradesh and various options available to revive the plant and its sustainability in future.

As you are aware Rashtriya Ispat Nigam Limited (RINL), the corporate entity of Visakhapatnam Steel Plant (VSP), is a Navratna Company under the Ministry of Steel, Govt. of India. It is the largest public sector industrial unit in the state creating employment opportunities for close to around 20000 people directly and many other indirect employment opportunities in the city of Vishakhapatnam. It is India’s first shore-based integrated Steel Plant and a producer of long steel products catering to the requirements of the Construction, Infrastructure, Manufacturing & Automobile sectors. This plant was realized only after many sacrifices by our people. The people of my state rallied for the Visakhapatnam Steel Plant in which 32 people have laid down their lives. On 17th April 1970, the then Prime Minister of India, announced the Government’s decision to establish a steel plant at Visakhapatnam culminating the decade-long public agitation “Visakha Ukku-Andhrula Hakku” in the undivided Andhra Pradesh.

I would like to draw your kind attention towards the fact that the plant had a good performance between 2002 to 2015 earning profits with positive Net worth. The plant has pragmatically turned-around in 2002 after being reported to BIFR as a sick company. The company has around 19700 acres of land currently and the valuation of these lands alone could exceed one lakh crore rupees due to the location of the plant in the urban area and rapidly expanding urban sprawl. RINL currently has a capacity of 7.3 Million Tonnes and has taken up plant modernisation and capacity expansion recently which made the plant to borrow loans from banks to take up the expansion. Owing to the unfavourable steel cycle globally the company was making losses since 2014-15 and was finding it difficult to service the debt. One of the major structural issue that also leads to high cost of production is the absence of captive mine thereby affecting the profitability.

Sir, I can emphatically say that the plant will again become a profitable venture given some support from the Government of India instead of taking the disinvestment route by implementing some turnaround measures such as allotting captive iron ore mines to bring down the input costs, swapping high cost debt with low cost debt, converting debt into equity through equity conversion and monetization of vacant land. I request you to consider the following measures for revival of RINL Visakhapatnam.

a. Continuing Operations to achieve turn around

As with all the sectors of economy, the steel sector is also seeing a V-Shaped recovery. RINL has achieved highest ever capacity utilization of 6.3 MTPA against the installed capacity of 7.3 MTPA from Dec 2020 and started making a monthly profit of close to INR 200 crores. Continuing this performance for a further period of two years will help the financial situation immensely.

b. Captive Iron Ores mine to Reduce Input Costs

Currently, RINL is purchasing iron ore from NMDC Bailadila mines at market price. This has put the RINL at a cost disadvantage of around INR 5,260 per MT of steel (at ore level). Many of its competitors have captive mines for more than 60% their requirement and buy only the rest from NMDC. Even SAIL has own captive mines with reserves of iron ore sufficient for 200 years. This excess cost of iron ore has cost implications of more than Rs. 3,472 crores for RINL. It is essential to create a level playing field for all the players and hence allotment of captive mines for RINL will help tide over this cost disadvantage. Orissa is blessed with iron ore and allotting the captive mine in Orissa State will go a long way in reviving the plant.

c. Financial Restructuring

Short term loans along with long term loans could be converted into equity taking off repayment pressures and interest burden.  The high cost debt which is actually Rs. 22,000 Cr is being serviced at interest rates as high as 14%.  Conversion of these loans into equity by the banks so as to remove the interest burden totally and listing the entity (RINL, Vizag) on the stock exchange giving the banks exit option through the stock exchange route through general public may also be explored. These measures could ease the burden of debt servicing and improve the financial sustainability.

d. Monetizing land to make the company cash rich

RINL has nearly 7,000 acres of un-utilised lands. Another measure that GoI can take up is to monetize these lands by way of plotting and sale by RINL itself and the amounts realised will make the company cash rich thereby increasing the valuation of the company. State Government would provide all necessary permissions for land use conversion to facilitate this intervention.

Therefore, I request you to kindly give me an appointment to explain all the options as narrated above, to revive and put RINL, Visakhapatnam back on track. I will bring an all-party delegation including the representatives of Trade Unions to represent to you directly the concerns being expressed by the people of Andhra Pradesh, employees and various stakeholders. I assure you that Andhra Pradesh Government will closely work with the Government of India under your able leadership in making this happen and together we can revive the plant for unlocking greater value to the society and in particular to the people of Andhra Pradesh. I seek an early appointment in this regard.

Yours sincerely,

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