The Steel Authority of India's (SAIL) stainless steel plant in Salem may close down if the uncertainty over its divestment continues, sources said. SAIL is exploring the possibility of forming a joint-venture with a strategic partner which can infuse fund to the loss-making unit.
However, serious differences between the DMK and AIADMK in Tamil Nadu and trade unions such as CITU and INTUC has resulted in stoppage of due diligence exercise by prospective bidders for the Salem plant.
The unit's losses have been mounting in the last five years and the company's cumulative losses increased from Rs 38 crore during 1996-97 to Rs 625 crore in 1999-2000. "If current losses are maintained, it may even lead to closure of Salem's operations unless a turnaround is not attempted through investment by the strategic partner in backward integration,' a senior SAIL official said.
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The official said that SAIL may not support Salem for long time as its own financial performance has not been comfortable for the last couple of years. SAIL had incurred a net loss of Rs 728.66 crore during the last fiscal.
Based on a global tender, SAIL has shortlisted Tata Steel-Usinor combine and Jindal Strips-Avesta Sheffield for taking a stake in the company. Sources said that low competitiveness of the Salem unit due to high cost of production has resulted in erosion of export volumes compared to earlier years and the unit faces a competitive disadvantage due to the absence of a steel-making facility, which would need substantial additional investments.
"Given the current cash crunch, capital expenditure by SAIL for backward integration is not possible," a senior company official said. The country's largest steel is also planning to exit from the non-core activities such as stainless steel production.
Sources also said the strategic partner in the JV would be bound by a pre-condition to absorb all the workers in the Salem unit. "Despite such assurances, the divestment has not taken off and this will not only deter the shortlisted parties from going further into the process but also affect the business operations of the Salem unit," the SAIL official said.