Vizag Steel expansion may be delayed

Differing opinions on RINL, SAIL merger cited to be reason

Lack of consensus on the merger of Rashtriya Ispat Nigam Limited (RINL) "� the corporate arm of Visakhapatnam Steel Plant (VSP) "� with the Steel Authority of India (SAIL), may delay the expansion plan of VSP by a couple of months.

VSP proposes to expand the capacity from the existing 3 million tonnes to 6.3 million tonnes by 2007-08 at a cost of about Rs 8,250 crore. It had already submitted its proposal to the central government for clearance.

"We were expecting the clearance before March itself, but the government asked us to study the possibility of merging RINL with SAIL. And now, as the merger plan is embroiled in controversy, our expansion plan may be delayed by a few months, a senior official of VSP told Business Standard.

The government has proposed the merger to overcome the iron ore shortage. SAIL has captive iron ore mines to cater to the needs of its plants, whereas VSP depends on state-owned National Mineral Development Corporation (NMDC) for iron ore. Currently, VSP requires 5 million tonnes of iron ore and on expansion the quantity is likely to double.

VSP has been planning to acquire captive mines since more than a year. It is currently negotiating with NMDC on a joint venture to acquire the captive mines at Bailadilla in Chattisgarh.

Initially, VSP was under the SAIL umbrella. But later, SAIL backed out due to cost overrun on plant construction. The government then constituted RINL to run VSP.

Now, VSP is financially sound and has not only wiped out its accumulated losses of Rs 4,600 crore but also maintained financial reserves of about Rs 3,000 crore. It earned a profit of Rs 2,000 crore in the fiscal ended March 31, 2004-05.

"If we want to set up a 3 million-tonne greenfield steel unit, it will cost more than Rs 12,000 crore. But after expansion, it will cost only around Rs 8,500 crore," VSP sources said.

However, local members of Parliament and union leaders are strongly opposing the government's move on the merger.

"When VSP was reeling under losses, some unions and local political leaders had urged the central government to merge VSP with SAIL. But at that time, SAIL did not show any interest. Now that the VSP is making profits, SAIL is keen on the merger," Mantri Rajashekar, general secretary, Visakha Steel Employees Congress, said, adding, "The expansion plan should not be delayed any further in the name of merger."