Financial Daily from THE HINDU group of publications
Friday, Apr 05, 2002
Will BIFR's tough stand on IISCO force Centre's hand?
Rabindra Nath Sinha
KOLKATA, April 4
WILL the tough stand taken recently by the Board for Industrial and Financial Reconstruction (BIFR) on the long-pending case of Indian Iron & Steel Company Ltd (IISCO) prompt New Delhi to spell out what it proposes to do with the sick outfit? This, right now, is the most pertinent question.
A close study of the observations understood to have been made by the BIFR Bench that heard the IISCO case on April 1 clearly suggests that BIFR is no more prepared to buy the contention of the Centre and IISCO's parent, SAIL, that revival of the sick company was engaging their attention and that they were awaiting a composite response from TPE of Russia, which has offered to be IISCO's strategic partner.
What did the BIFR Bench tell the representatives of the Steel Ministry and SAIL at the hearing on April 1? The main points that emerged were:
Rarely has BIFR taken such a tough stance in its existence of over 17 years.
What is the possible interpretation of what BIFR has said?
It has serious doubts about a comprehensive response from TPE, which has surfaced time and again with an offer in the last six years or so, out of the eight years for which the IISCO case is pending with it.
Secondly, the Union Government must make a decision without further delay on the Rs 1,081-crore rehabilitation scheme that SAIL had sent to the steel Ministry in the third quarter of 2001.
If TPE really makes a worthwhile offer and is unambiguous about how it proposes to organise funds for its participation, the Centre should act upon it; but only after initiating appropriate action on the Rs 1,081-crore scheme.
Why is BIFR not prepared to lay store by the offer of TPE? Simply because TPE wants to access funds from the escrow account constituted under the bilateral agreement on India's repayment of the Soviet era debt and the Russian Government has so far not entertained the proposal.
In the Rs 1,081-crore scheme, SAIL has sought Rs 540 crore as outright grant from the Centre for VRS for 9,000 employees. It has sought, as outright grant, Rs 200 crore, for sustaining cash losses till revival. It wants to invest Rs 230 crore in the Burnpur works and Rs 111 crore in IISCO's captive mines, including collieries.
And, the amount has to come from the Union Government as a soft loan, at an interest rate of seven per cent.
The proposal also lists several concessions and reliefs to be extended by the Centre and the West Bengal Government.
Here, it may be mentioned that the West Bengal Government has since conveyed to the Finance Ministry its readiness to offer reliefs and concessions, provided IISCO is revived as a whole and no unit is closed down on the plea of non-viability.
According to reliable reports, the Steel Ministry forwarded the proposal to the Finance Ministry about three months ago.
The Finance Ministry is prepared to make a commitment only on the amount sought for VRS, that is, Rs 540 crore. But, there has to be a Union Cabinet nod for this. But, the matter has not yet been remitted to the Cabinet.
In this context, it is understood that IDBI, the operating agency for IISCO, has doubts whether with just 35-36 per cent of Rs 1,081 crore earmarked for update, the company can become viable.
Dasturco, IDBI's consultant, has emphasised on several occasions that IISCO can be turned around over a period time with relatively small investments, say Rs 30-40 crore, in the first two years and, thereafter, with relatively large investments, say Rs 200-300 crore in the subsequent three-four years.
And for this, first there has to be pre-modernisation planning keeping in view IISCO's immediate needs and follow up the same with phase-wise turnaround plans.
It has cited how Tata Steel began the modernisation programme in the early 1980s with relatively small investments in the initial years.
The same route can be taken for IISCO and priorities re-worked, if the Union Cabinet shows green signal for the Rs 1,081-crore SAIL proposal.
Of course, everything will depend on how seriously the Union Government takes the strong views expressed by BIFR.
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