What led VSP, India's first shore-based steel plant, to sell land?

Established in 1982 amidst persistent public campaign, the plant once symbolized Andhra Pradesh's pride and legacy.

Cash-strapped Rashtriya Ispat Nigam Ltd (RINL), the corporate entity of Visakhapatnam Steel Plant (VSP), recently encashed Rs 243 crore after selling more than 70 parcels of land through e-auction.

Earlier this month, the plant struggled to pay its executive cadre employees, sparking a protest. The sale of plots reflects the poor cash flow of the country's first shore-based integrated steel plant as its operations bleed.

Established in 1982 amidst a persistent public campaign, the plant once symbolised Andhra Pradesh's pride and legacy. How, then, did the company become crippled by financial challenges? Moneycontrol explains:When was the VSP commissioned and what happened?
In 1966, when former Prime Minister Indira Gandhi rejected the proposal for setting up a steel plant in Vizag, violent protests took place across the state, forcing Gandhi to take a U-turn in 1970 and give a nod for setting up the plant.

The plant was a product of a movement driven by local communities, labour unions, and political leaders who advocated for the project's realisation.

Commissioned in 1992 with a 3 million tonne per annum (MTPA) liquid steel capacity, the plant took 22 long years from conception to commissioning, resulting in an increase in project cost to over Rs 8,500 crore. The implication of this was very high interest and depreciation charges, resulting in an accumulated loss of Rs 2,033 crore even before the start of the operations.

What led to the downward growth trajectory?
The steel plant saw periods of profitability between 2001 and 2016 but went back into losses after 2016 due to fluctuations in the global steel prices, higher interest paid on loans and higher raw material costs due to the absence of captive mines.

The plant is the only one to operate without a captive mine causing the costs to balloon as it paid high prices to procure iron ore from NMDC. In 2021-22, the cost of raw materials formed about 64 percent of its total expenditure.

From FY16 to FY18, RINL reported losses of Rs 1,604 crore, Rs 1,263 crore and Rs 1,369 crore, respectively. In FY20 and FY21 the company again reported losses of Rs 3,910 crore and Rs 1,012 crore. According to reports, the loss exceeds Rs 3,000 crore in FY23.

What is the debt situation?

RINL had availed a total amount of loans of Rs 31,357 crore between 2000-01 and 2022-23 (up to 25.11.2022) and repaid an amount of Rs 12,751 crore towards loans during this period, according to data from the Ministry of Steel.

According to documents seen by The Hindu, total borrowings were Rs 24,558 crore for FY23, which included working capital loans of Rs 15,034 crore and capex borrowings of Rs 9,524 crore.

Why are the land parcels being sold?

The company, saddled with crores of rupees of debt, is now looking to shore up cash flows by selling a portion of its non-core assets spanning 13.89 acres, with a reserve price of Rs 480 crore. The cash raised will be used to trim debt and working capital needs.

The first phase of the e-auction mobilised Rs 243 crore as RINL properties located at HB Colony near Seetammadhara, Autonagar, and Pedagantyada in the port city were put up for bidding on March 14 and March 15.

The second phase of the e-auction, which will see 67 plots and 5 blocks of the VSP up for sale, will be conducted soon.

What happened to the privatisation plans?

In December 2021, the Union Cabinet cleared the privatisation plans of RINL giving a nod for 100 percent strategic disinvestment of the government shareholding in the company along with RINL's stake in its subsidiaries/joint ventures.

The move aimed at restoring profitability and putting a lid on the mounting debt situation. However, the move faced staunch opposition from the employees delaying the strategic sale. According to reports, the process could begin again after the general elections.