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SAIL downsizing: Problems and prospects

Rabindra Nath Sinha

CALCUTTA, May 11

STEEL Authority of India Ltd is likely to introduce a fresh voluntary retirement scheme (VRS) in September, according to company sources. This would be the first VRS it would offer under the two-component restructuring package cleared by the Union Govern ment in mid-February.

The September timeframe for the fresh VRS suggests that the company hopes to finalise raising the first tranche of the Rs. 1,500-crore borrowing programme on this count latest by end-August. Also, by then it would have, perhaps, raised loans to meet its repayment obligations.

SAIL has decided to downsize its manpower from around 1,60,000 currently to around 1,00,000 in the next three-four years.

The SAIL move, can, perhaps, be compared to a similar downsizing effort by British Steel. A related question may be as to how much further SAIL would have to downsize after the contemplated fresh exercise is over.

British Steel reduced its workforce from 2,68,500 in 1967 to 1,86,000 in 1978-79 to 1,03,700 in 1981-82 to 51,600 in 1987-88. It remains at around that level.

However, while British Steel could retrench people, taking into account the unemployment support that the retrenched employees would be entitled to under the UK Government's welfare schemes as also the prospects of their finding alternative jobs, the pos ition is vastly different in India.

With no provision for unemployment support and the rather dim prospects for alternative jobs, PSUs such as SAIL have to assume substantially more financial load for implementing a scheme for downsizing, which has to be only through natural separation and VRS.

As part of the restructuring package, the centre has agreed to provide guarantee for a loan of Rs. 1,500 crores that SAIL would raise in tranches for the downsizing exercise and also bear 50 per cent of the interest thereon. Its immediate benefit would b e limited to a saving of around 30 per cent of the corresponding wage bill. This amount is spent on providing benefits and facilities to employees. In the long run, of course, the financial benefits would be much more.

Therefore, downsizing is not a very attractive proposition for SAIL which, however, has to take recourse to it in the context of its large manpower and the need to enhance operational efficiency in changed circumstances. Earlier, as evident from the man power data for British Steel, huge workforce was the order of the day and relevant to the technology then in vogue.

But, SAIL has modernised its facilities in the integrated steel plants at huge investments and with reforms, competition has intensified. From a peak manpower level of 2,50,000, it has already downsized to 1,60,000. The bulk of the reduction has been thr ough natural separation. VRS has helped in reducing manpower by 7,437 in 1986-1989, 9,490 in 1989-1993, 5,975 in 1998 and 13,053 in 1999.

Under the targeted reduction to around 1,00,000 from the existing 1,60,000, around 50 per cent would be natural separation, as its plants have a high age-mix.

There would also be some reduction as and when it is able to either hive into joint ventures or fully divest what it considers non-core areas, for which the initial process of getting `expression of interest' has begun. Reduction on this count could be a round 5,000 to 7,000. VRS would account for the balance reduction of around 25,000-30,000.

Would SAIL be required by circumstances to attempt downsizing even after it has succeeded in bringing down manpower to 1,00,000 as currently envisaged? The answer, perhaps, has to be in the affirmative.

British Steel (now part of Corus, The British Steel-Hoogovens combine) has a manpower of 52,900 for a capacity of 17.6 million tonnes (mt). The position in other steel complexes abroad is: Voest Alpine of Austria - 51,600 for 17 mt, Pohang Steel of South Korea - 20,180 for 23.9 mt and Nippon Steel of Japan - 24,520 for 29.9 mt. But, SAIL is neither similarly structured nor has it reached their technological levels. Hence, for SAIL to downsize to their levels is out of question.

Within the country, the Vizag Steel Plant of Rashtriya Ispat Nigam Ltd would be a more logical benchmark for the present. RINL has an installed capacity of 3 mt and a manpower of 17,400. Therefore, going by RINL example, SAIL with an annual capacity of 1 1.6 mt of crude steel in the main plants should have a manpower of 60,000-70,000 - even after taking into account some of the additional facilities it possesses and the conditions prevailing in the country.

However, SAIL would require further modernisation, particularly in the finishing zones, to come down to this level of manpower. But, this would be a costly proposition. On present reckoning, an investment of Rs. 8,000-10,000 crores may be necessary in, s ay, two or three phases. Given its current financial condition, it may be quite some time before it is able to launch further update, with which will be linked further downsizing.