Steel units shut down in Punjab in the wake of high power tariff

High cross subsidy on the open access of power has also jeopardized the health of steel industry in the last few years

J P Sharma of R K Steel and Alloys, Mandi Gobindgarh, Punjab, is unable to find buyers for his steel mill. Sharma, a second generation entrepreneur, wants to sell his loss making unit in Punjab and consolidate his business in Chattisgarh, where he set up a steel factory few years back.

There are many like Sharma in Mandi Gobidgarh, ‘The steel City of Punjab’ who are scouting for buyers as business is unviable and there is no hope of revival.

While the small factory owners have been scaling down their volumes, those who have financial strength, have expanded in Eastern states due to cheap power and proximity to the mines. Mandi Gobindgarh based Fortune Metals Limited has set up a steel mill in Raigarh that is four times the capacity of its Punjab mill. 

Some medium scale units, according to sources in banks are under debt restructuring. 

The Industry Minister of Punjab, Madan Mohan Mittal also admitted that out of 200 units those closed down in last eight years, 193 were in Mandi Gobindgarh.

The exorbitant power tariff and a high cross subsidy on the open access of power jeopardized the health of steel industry in the last few years.

‘Few years back, labour shortage was a big issue. We were not able to meet our labour demand due to MNREGA as migrant labour was not available as per the need of industry. Now the situation has reversed. The labour is going back due to dearth of work”, said J P Goel of Bhawani steel Private Limited.

Goel’s factory is operating at 35 per cent capacity utilization and the sales turnover at Rs 250 cr, half of what it was four years back. The composite plant, spread in 50 acre is under acute stress due to burgeoning cost of bank repayments.

“A recent announcement by the Deputy Chief Minister of Punjab, Sukhbir Singh Badal that the new industry would be offered power at a cheap rate of Rs 5 per unit has pulled the rug under our feet. The existing industry is paying Rs 8.25 (approximately) per unit and is in a dismal condition due to unviable power cost. The government is keen on inviting new investors and paying no heed to the problems of existing industry”, said Vinod Vashisht, President of All India Steel Re-rollers Association, who has his factories in Mandi Gobindgarh. “We sent a representation to the Deputy Chief Minister after the announcement and waiting for a call from his office for a meeting”. Since power is one of the raw material for steel industry, even a small hike goes a long way for the industry.

The slowdown in Punjab industry is not a part of global recession but it is the policies of the state government. The high surcharge on wheeling of power, flip flop in policies (e trip was introduced for sales tax collection and withdrawn), high collectors rate on land put together have made the state unattractive for the business.

Punjab has been ranked 16Th in the World Bank’s Report on Ease of Doing Business. The debt burden of the state has been doubled from Rs 51,153 to Rs 1, 17,353 in the last eight years.

The state Industry Minister told Business Standard the steel industry in Punjab is in dire straits and the Government may soon come with proposals for the revival of this cluster.