Vizag Steel’s Revival Plan Ignores Core Reform: Mine Access

Since 1991, when Vizag Steel (a Central Public Sector Enterprise, or CPSE) became operational in north Andhra Pradesh, it has been the only shore-based steel plant in India, built over 20,000 acres; it has an installed capacity of 7.3 million tonnes per annum and has played a crucial role in the development of the north Andhra region.

But the massive cash infusion may not quite address a fundamental, three-decade-old problem that contributed to the plant’s financial crisis in the first place: it is the only CPSE without a captive iron ore mine, forcing it to buy ore at much higher prices (Average Rs.6,350/tonne vs Rs.3,000/tonne for competitors).

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Without addressing this structural disadvantage, the cash infusion might only provide temporary relief rather than sustainable recovery. Union leaders and experts say either granting captive mines or merging with Steel Authority of India Limited (SAIL), which has its own mines, is necessary for long-term viability.

The ore demand

There have been distinct contradictions in the government’s approach to the revival of the ailing steel plant: while announcing its ambitious plans, the State government pursued securing iron ore supply for the proposed private competitor (ArcelorMittal Nippon Steel, or AM/NS), while Vizag Steel continues to struggle without it.

In 2023, Vizag Steel was at a cost disadvantage of Rs.6,000 per tonne due to a lack of captive iron ore. J. Ayodhya Ram, the leader of Visakha Ukku Parirakshana Porata Committee (a collective of workers and trade unions) told Frontline: “Each tonne of Steel needs 1.6 tonnes of iron ore as raw material. Vizag Steel spent an average of Rs.6,350 per tonne of iron ore (purchased from the National Mineral Development Corporation, or NMDC, and other sources). Meanwhile, SAIL, Tata, and Jindal, which have their captive mines, would be spending Rs.3,000 per tonne. This difference is why we are losing out. It is like a chakravyuh around us.”

For over three decades, successive Central governments have overlooked this crucial demand to equip Vizag Steel with captive iron ore, thereby exacerbating the crisis. Another critical dent in the profit owes to the high-interest borrowing for the expansion of the Blast Furnace-3. The increased operational costs and loans hit profits and contributed to losses. It also led to the exhaustion of borrowing limits, and, eventually, an inability to raise working capital. The volatility in global steel markets added to the crisis.

Currently, the plant’s liabilities are approximately Rs.26,114 crore. M. Sarat, an employee of Vizag Steel and vice-president of the Human Rights Forum said: “We have several pending payments and dues, including GST, income tax, and PF [provident fund]. One estimate is that we will be left with Rs.2,000 crore if all these are cleared.”

He reiterated that the core demands have been to either grant Vizag Steel a captive iron ore mine or merge RINL with SAIL (which has its own captive mines). In the absence of either, the cycle of losses and debts will only perpetuate because of the high raw material costs. Although Naidu told the press that iron ore allocation to Vizag Steel would be accomplished through an open auction, the assurance hasn’t been formally announced.

Enter, ArcelorMittal Nippon Steel

It has also become a bone of contention that while Vizag Steel awaits iron ore allocation, a memorandum of understanding for iron ore supply (by NMDC in the form of slurry) to the AM/NS plant is being firmed up, as per Naidu. The new AM/NS plant is coming up in the vicinity of Vizag Steel with an estimated Rs. 1.4 lakh crore investment and capacity of 17.8 million tonnes per annum. The ArcelorMittal group also owns other captive mines.

Former Energy Secretary to the government of India, E.A.S. Sarma, wrote an open letter to the Union Finance Minister Nirmala Sitharaman highlighting this disparity on January 18, “the NDA government at the Centre and its TDP-JS [ Telugu Desam Party-JanaSena] partner in AP [Andhra Pradesh] are both working at a breakneck speed to give fast-track approvals to ArcelorMittal, a future private competitor of RINL, for locating its plant hardly a few kilometres from RINL’s location near Anakapalle”. Sarma lives in Vizag and has consistently advocated for the Vizag Steel plant. Sarma, too, stresses on the need for a merger with SAIL, which he sees as the most “prudent way to revive RINL”.

Leaders of the Visakha Ukku Parirakshana Porata Committee unveiled a poster urging PM Modi to stop the privatisation of the steel plant at a press meet in Visakhapatnam in November 2022.
| Photo Credit:
V Raju

K.V.D. Prasad, the general secretary of the Steel Executives Association (SEA) of Vizag Steel, said that there are policy-level hindrances. “As per the New Public Sector Enterprise Policy for Atma Nirbhar Bharat (February 4, 2021), non-strategic CPSE can either be closed or privatised. Currently, Steel is in non-strategic sectors as per the policy. It’s pivotal that Steel be placed back into the strategic sector to overcome any hindrance to mergers.” Prasad contends that as the government has gone against its own policy to infuse cash into Vizag Steel, it should also amend the policy to enable a merger with SAIL.

On January 23, the Union Minister of State for Steel, Bhupathi Raju Srinivasa Varma, said that a merger is a no-go as Vizag Steel is currently debt-ridden. There has been no official announcement about it yet. Amidst the revived public discourse about Vizag Steel and its viability, experts, and union members are concerned about Vizag Steel’s net worth. While announcing the revival package, the Cabinet pegged the net worth of Vizag Steel at Rs.(-)4,538 crores. “How can the net worth of a company be in negative values when the land it is built upon is worth at least Rs.1.5 lakh crore?” Sarat asks.

Fears of privatisation persists

“My understanding is that the net worth is being depreciated to create an image of losses, to show that the plant is not sustainable. Eventually, in the long-term, one can show that despite the infusion of public money, Vizag Steel couldn’t recover. If the raw material concerns remain unaddressed, this (cash infusion) could very well become the foundation to justify privatisation,” Sarat told Frontline. Many unions feel the same.

Meanwhile, scepticism about the government’s true intentions persists, as some stakeholders worry that if the plant fails to recover even after this public money injection, it could be used to justify future privatisation attempts, especially since steel remains classified as a “non-strategic” sector.

On January 27 this year, it will be four years since the CCEA gave its in-principle approval for Vizag Steel’s 100 per cent divestment citing losses. But this attempt was stonewalled primarily because of the protests by workers, employees, and unions of Vizag Steel.

Despite the assurance by Naidu and Kumaraswamy, union representatives demand an official reversal of the CCEA’s January 27, 2021, in-principle approval. “Just because you announce something in a public meeting or gathering, it won’t come true,” said one union leader.

The spectre of VRS

Sending mixed signals about the viability of the steel plant, the government has pushed for workforce reduction through a voluntary retirement scheme (VRS). On January 15, a few days before the announcement of the revival package, the RINL management began accepting VRS applications from eligible employees. The VRS circular stated that the management wants to “rationalise existing manpower, achieve optimum HR utilisation, reduce costs, and improve productivity”.

According to union sources, over 800 employees (both executive and non-executive) have opted for VRS so far, owing to low morale, non-payment of salaries, and concerns about the plant’s viability. January 31 is the deadline, and union leaders claim that the target is to reduce the workforce by around 1,000 employees. “The VRS arose from a false narrative about surplus manpower based on exaggerated calculations,” said Sarat. “On one hand, you want Vizag Steel to reach full production and run all three blast furnaces by August 2025. On the other hand, you push for reduced staff. This is contradictory,” said Ayodhya Ram.

Working capital crisis

In 2024, the steel plant saw a particularly severe working capital crisis. Union leaders told Frontline that the past few months have been more demoralising than ever before in the history of Vizag Steel for the workers and employees. Salary cuts and delayed salaries are now the primary concerns of employees.

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“In April 2023, Vizag Steel had nearly 15,000 permanent executive and non-executive employees. There are currently 12,300 permanent employees working here now. In the next three years, nearly 4,000 employees will retire. Unless there is a recruitment drive soon, we will be severely short-staffed,” Ayodhya Ram told Frontline. “The total number of contract workers has dropped from nearly 20,000 in 2023 to around 14,000 today,” said Ayodhya Ram.

How the already understaffed, underpaid, and overworked employees at Vizag Steel will pull off the new targets of a plant working at full operational capacity is incomprehensible, unless a recruitment drive begins soon. A week after the announcement, management has yet to inform employees of a tentative timeline for clearing arrears.

Unions continue to hold on to the hope that one day, with the capital infusion, their salary dues will be cleared soon. “There could well be around Rs.1,500-1,600 crore pending bills and dues (including, but not limited to, PF, leave encashment, superannuation, regular salaries, etc.) that should be prioritised,” Prasad told Frontline.