Vizag Steel: Public’s steely resolve against disinvestment

Twenty-eight years ago, an interviewer asked a job seeker, “What is it that strikes your mind the moment you think of Visakhapatnam?” “It is the sea and seashells and the Dolphin’s Nose,” replied the young interviewee, a poet himself.

“And what else?” asked the interviewer provokingly. Not pausing a moment, he added quickly, “Is it not the Visakhapatnam Steel Plant?” The job aspirant nodded approvingly. The interviewer was a technocrat in a public sector oil giant and on a recruiting mission for its refinery in Visakhapatnam.

The Visakhapatnam Steel Plant, which has recently hit the news headlines following the Centre’s decision to disinvest 100 per cent stakes in it, would receive such mentions not only at such interviews but on other occasions as well. The Visakhapatnam Steel Plant gained such traction among the various public sector units, small-scale industries and the society at large.

Reason? That was actually the time around which Rashtriya Ispat Nigam Ltd, the corporate entity of the Visakhapatnam Steel Plant (VSP), started steel production from its prestigious Godavari Blast Furnace after a long wait of twenty years since the then Prime Minister Indira Gandhi laid the pylon in 1971. A broad spectrum of society pinned a lot of hopes on the VSP.

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The VSP did not shatter their hopes. It provided employment for thousands of people- be it locals or non-locals. It catered to the infrastructure needs of the country by supplying superior quality steel, it supported many small-scale ancillary industries, it raised the social and economic status of the people, it stood behind the disadvantaged sections by providing reservations in recruitments and this list goes on.

What statistics say

Let us take a look at the statistics. The plant provided employment for about 32 lakh people in AP in addition to the 10,000 people who are on regular payrolls. About 4500 persons belonging to SC and ST categories have got employment in the plant. It has paid taxes to the tune of Rs. 44,000 crore to the Central and State governments as of now. Gajuwaka and Pedagantyada mandals where the VSP and other major PSUs are located generated the highest per capita income (PCI) in AP. Gajuwaka Assembly Constituency topped among the 175 constituencies with a PCI of Rs.2,64,232.
As if all this is not part of growth and development, the ruling parties at Delhi at different times made attempts to privatise the company on the pretext of its incurring losses. The heavyweights in power began to say they cannot carry the VSP on their slain shoulders any longer since the losses cannot be made up. Now the BJP government at the Centre is making a fresh attempt to get rid of it by offering it to private players like the POSCO in the same guise.

Why losses?

The VSP had sustained losses of Rs.4600 crore in 1999-2000. The reasons could be attributed to the escalated costs because of the delayed commissioning and delayed funding. When the government came up with a proposal of referring the Plant to the Board for Industrial and Financial Reconstruction (BIFR), the workers organised protests. The agitation garnered the support of freedom fighters Patti Seshayya and Rongali Bairagi.

Even as the agitation against privatisation was going on, a delegation comprising CPM and TDP MPs along with the trade union representatives met with the then Prime Minister AB Vajpayee and sought restructuring of capital to bail out the company from losses.

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The united struggle put up by the workers yielded results in their favour. The government took up the first capital restructuring in July 1993. A second restructuring was undertaken in 2002 converting government loans into redeemable preference capital. As a result, the plant which suffered losses to the tune of Rs.4600 crore began to deliver profits. It is noteworthy that the VSP achieved a surplus of Rs.5600 crore.

Profits for 12 consecutive years

The Plant recorded impressive profits for twelve consecutive years beginning 2002 and accredited with Navaratna status in 2010. The success saga continued until import policies of the government hit it badly in 2014. However, it incurred a net loss of Rs.1421 crore in 2015-16 and Rs.1236 crore in 2014-15 and the reasons for which primarily lie in policies of the successive governments at the Centre. The burgeoning raw material prices and market downturn were among several issues that led the plant into this financial crisis.

Iron ore being the raw material for steel making, the plant is to earmark a major chunk of its finances on it, besides coal. The rising costs of both iron ore and coal inevitably have resulted in increased operational costs over the years. The plant had to spend about Rs.7000 crore on procuring iron ore alone during 2016-17. The employees and the management of the plant consistently seek captive mines for the plant so that they can reduce operational costs drastically. They demand that the iron mines located in Prakasam, Anantapur districts of Andhra Pradesh and Khammam and Warangal districts of Telangana be allocated to them.

VSP is the only entity denied captive mine

Both state-owned and private-run steel plants in our country excepting the RINL’s Visakhapatnam Steel Plant have captive mines. Ever since the RINL formed in 1982 by way of separation from the Steel Authority of India (SAIL), the successive governments have made promises to allocate captive mines for the VSP. Even the first Detailed Project Report (DPR) prepared by MN Dastur & Co suggested the allocation of two blocks in Bailadilla mines. None of the successive governments, be it Congress or BJP, has shown an iota of interest in implementing the DPR recommendations.

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The VSP needs 10 MMT of iron ore for its operations. Subject to the quality of the ore, it spent between Rs.3500 and 4500 on the purchase of a ton of iron ore while the other steel units owning mines spent only Rs 500 per ton as per the calculations made in 2018. The cost later escalated up to Rs. 5000-7000 for the VSP and Rs. 1300-1800 for others following changes in the Mines Act by the BJP-led NDA government. Had the government allocated captive mines, the VSP would have bagged a profit of Rs.3000 crore a year approximately.

“The Centre now cites an amendment to the Mines and Minerals (Development and Regulation) Act 1957 passed in 2015 as an excuse for not being able to allocate mines for the VSP. The amendment empowers the states to lease out the coal mines. That does not mean the Centre does not hold any say on the matter. It can initiate a dialogue with those states in the interest of state-owned industry,”opines S. Jyotheeswara Rao, convener of Visakha Public Sector Coordination Committee.
Further, the government’s free-market policies delivered a death blow to the domestic public sector steel industry. India imported about 9 million tons of steel during 2015-16 giving an edge to the traders of foreign steel in the market. In the absence of import duty, imported steel sales thrived leading to a dramatic decline in the sales of domestic steel. The Centre imposed import duty at a rate of Rs.250 per ton on some of the steel products despite a demand from the steelworkers’ unions and left parties to stall the import of steel.

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Loan burden

The Visakhapatnam Steel Plant had to borrow loans to meet the expenditure on the expansion of projects in the second phase in the 90s. “There was not any financial assistance from the Centre for the expansion and as a result, the VSP had to borrow loans from external agencies. The VSP is paying interest at a rate of 14 per cent on loans it secured. The eventualities are huge interest burden and net losses for the company,” said N. Rama Rao, former president of the recognized steelworker’s union.
The VSP, the first shore-based integrated steel plant, came into being as a result of a state-wide agitation in which 32 persons sacrificed their valuable lives. Without giving any hassles, people from many villages around the steel plant readily offered their 23,000 acres of agricultural lands in bits and pieces for construction of the VSP, placing their trust on the government that the plant was being set up for public purpose. Reason coupled with sentiment is making the people rally around the slogan- Visakha Ukku Andhrula Hakku -once again. It remains to be seen whether or not the Centre backs off on its decision to disinvest the plant, respecting the public mood in days to come