KIOCL takes measures to cut costs, sustain plant

Company has entered into an O&M contract with public sector NMDC Ltd, which is setting up its own pellet plant

Ore-starved KIOCL Ltd, the public sector miner, has embarked on a slew of measures to not only cut costs but also to sustain its standalone pellet plant. Signing an operation and maintenance (O&M) contract, VRS plan and disposal of mining assets are among the measures initiated by the company to keep itself slim and profitable.

As part of this exercise, the company has entered into an operation and maintenance (O&M) contract with public sector NMDC Ltd, which is setting up its own pellet plant.

The company recently offered voluntary retirement scheme (VRS) to 300 employees which it considered surplus as it has no captive mines today. Other cost-cutting measures the company has executed in the recent past is disposal of mining and beneficiation plant at Kudremukh in Chikmagalur district of Karnataka. All these measures have resulted into a cost saving of close to Rs 100 crore annually to the company.

“We had to close our captive mines in 2006 following the Supreme Court direction. As a result, we had to offer VRS to surplus staff and 300 employees have accepted. In order to make use of the remaining technical staff, we have entered into an O&M contract with NMDC where we will deploy another 170 engineers to operate their pellet plant. Their salaries will be taken care of from this contract, which will in turn reduce burden on the company,” Malay Chatterjee, chairman and managing director, KIOCL Ltd told Business Standard.

Recently, KIOCL spent Rs 70 crore to offer VRS to 300 employees. With this, it will save around Rs 25 crore annually in salary and other perks to them. Following the VRS, the company is now left with 946 employees of which 611 are at its pellet plant in Mangalore.

As part of the O&M contract, KIOCL would get around Rs 25-30 crore annually. It would also save another Rs 40 crore per annum in terms of maintenance cost towards its mining and beneficiation plant at Kudremukh. The company recently concluded a deal with Chennai-based Annam Steels Private Ltd for disposal of its mining and beneficiation plant machinery and other equipment for a consideration of Rs 277 crore.

“As we do not have captive mines, we are sourcing iron ore from NMDC’s Bailadila mines in Chhattisgarh at a very high landed cost of Rs 5,500 per tonne. We are running our pellet plant even though our margins are very thin because it helps us keep our plant running. As our pellet standards are high, we are able to command Rs 600-1,000 per tonne higher price compared to other pellet makers in eastern sector,” Chatterjee said.

For June 2014, the KIOCL has fixed Rs 8,250 per tonne of pellets as against Rs 7,700 per tonne charged by others in the eastern sector.

“Ever since the mining was stopped at Kudremukh, the company has struggled to sustain manpower cost and maintain profitability. Last two years, we have struggled to become profitable by giving golden handshake to 300 employees. We have economised our costs by taking these measures,” he said.

For 2013-14, the KIOCL produced 1.7 mn tonnes of pellets and is looking to make full use of its capacity of 3.5 mn tonnes at Mangalore plant. In this direction, the company is in advanced talks with an Iranian government firm for importing iron ore fines.

It intends to import fines, convert into pellets and export back to Iran.