The future looks rather promising for Steel Authority of India (SAIL) and it is imperative that it does not lose this historic moment to chart a qualitatively different scenario for itself from its past, which has mostly been a story of coasting along at a fraction of its potential. The change comes from clear signs of a positive answer to the question mark that has hung over its ability to exploit the huge Chiria iron ore mines in Jharkhand with their 2 billion tonnes of deposits. SAIL Chairman SK Roongta has indicated that 1 billion tonnes out of the two are effectively in the bag and the rest can come if land is available for a green field plant in the state.
The need to make a break with habits of the past is etched in the Chiria saga itself. The deposits were for SAIL to exploit ever since the sick Indian Iron and Steel (IISCo) was made a SAIL subsidiary in 1979. But for decades, SAIL (which was itself loss-making till it turned around under V Krishnamurthy in the later part of the 80s) considered IISCo a burden and had neither the vision nor the ministerial encouragement to plan to become a global player of consequence. Chiria and its value were forgotten in a fit of historic absentmindedness and the poor people of Jharkhand, then still part of Bihar, got nothing out of the resources that the gods had put for them under the ground.
The global commodities boom in the earlier part of this decade, particularly in steel prices as China undertook a huge construction effort in the run-up to the Beijing Olympics, changed all that. The world and its mother, from Posco to ArcelorMittal, discovered the merits of India as a place to make steel and Chiria became the holy grail to pursue. Now that SAIL has got back at least a part of what it should not have neglected and almost lost in the first place, where should it try to go from here?
India accounts for around 4 per cent of the global steel production (China 40 per cent) and the only redeeming feature is that since 2003, it has moved up from eighth to fifth position. The public sector steel output has remained stagnant and it is the private sector output that has, since 1991, accounted for this rise in national output and change of rank. It is now up to SAIL to get into the act and use the Chiria break that it has got to go forward.
Since the economic slowdown started in 1996, SAIL has undergone ups and downs along with the rest of the industry. The cost-cutting measures adopted during those tough times have now become systemic. The better cash flows since 2002 have enabled modernisations to take place which are now bearing fruit. For example, in the area of energy consumption in steelmaking (giga calories per tonne of crude steel), the gap between SAIL and Tata Steel has narrowed to virtually the same level (6.74 against 6.58) as in 2008-09.
The uncertainty over land acquisition for green field projects being what it is, India’s ability to raise steel output in the near term and thereby improve its share of the global output is limited to brown field expansion (at existing plant sites). SAIL, operating out of five major locations, has chalked out an ambitious expansion plan to raise output by a massive 75 per cent to 24.5 million tonnes of crude steel in three years to 2012. This is proposed to be accompanied by technological upgrade, which will enable it to move to 100 per cent basic oxygen furnace route of steelmaking and continuous casting. Sale of semi-finished steel, which results in low value addition, will be completely eliminated. A key high-value product to be added will be cold rolled auto grade steel, something which Tata Steel went in for years ago.
The ongoing projects will involve an investment of Rs 54,000 crore which cannot obviously be done out of internal resources. Again, fortunately, with the Union government no longer dependent on leftist support and the stock market picking up, a public issue via disinvestment and capital expansion is coming.
While these material stepping stones will take SAIL forward part of the way, its biggest challenge will be to achieve a transformation in terms of public perception. It has to graduate into the super league of successful public sector behemoths like Bhel and NTPC. These are market leaders in their respective sectors in terms of technology, operating efficiency and investor perception. Fascinatingly, they have managed to insulate themselves from the vagaries of changing leadership. Ministers come and go, the organisations themselves at times remain headless, but a well established corporate ethos and agenda carries them through. Government support for this agenda has become a part of the national agenda.