CAG pulls up SAIL, RINL for operational inefficiencies

The Comptroller and Auditor General of India has pulled up state-run PSU steel majors, SAIL and RINL, for various operational inconsistencies and inefficiencies leading to losses running into crores of rupees.

As per reports tabled in Parliament on Tuesday, the CAG said, SAIL did not take adequate steps to upgrade and modernise its production capacity for refractories used in the steel-making process.

The company failed to constitute a refractory task force and assess annual requirements at the Durgapur Steel Plant, Alloy Steels Plant, and Indian Iron & Steel Company Steel Plant. This led to the procurement of excess inventory of ₹257.15 crore (March 31, 2020) while the inventory of refractories lay blocked for 15 to 20 years.

“SAIL also failed to develop a good vendor base and continued to procure items on a single tender basis,” it said.

For instance, the Rourkela Steel Plant procured tundish refractory, a foundry equipment, on a single tender for ₹113.39 crore in FY14–20, while the Bokaro Steel Plant procured refractory for ₹90.28 crore from the same supplier from 2015–16 to 2019–20 on a proprietary basis.

“Refractory management system in SAIL requires improvement so that in-house facilities are optimally utilised and costs for procurement of refractories are reduced,” the report tabled mentioned.

Hedging of loans

The audit noted that the decision to hedge the loan and interest “was not consistent”. Non-hedging of loans of $400 million in terms of foreign exchange fluctuation led to avoidable expenditure of ₹194 crore. T

The company did not hedge interest on buyers’ credit (LIBOR) except in a few cases during March 2017 to December 2017.

“The critical ratios depicting SAIL’s financial position, like debt-equity ratio, interest coverage ratio, and net debt to EBITDA (earnings before interest, taxes, depreciation, and amortisation) ratio indicate financial instability and a worsening credit profile,” the report mentioned.

RINL pulled up

According to another report tabled by the CAG, RINL was pulled up for delaying repairs at its two blast furnaces and a failure to synchronise upstream and downstream production facilities caused a loss of nearly ₹6,700 crore.

The blast furnaces were commissioned in March 1990 and March 1992, with repairs being scheduled for 14 to 16 years from commissioning. However, against this, actual repairs were done nearly 24 years after commissioning, leading to deterioration in the health of furnaces and restricted operations.

“This caused a loss of production of 1.78 million tonnes of hot metal from 2011-12 to 2015-16 with a consequential loss of earnings of ₹1,396.64 crore,” it said.

There was a loss of production of 4.93 million tonnes of hot metal with a consequential loss of earnings of ₹1,844.82 crore as the blast furnaces were “not utilised to their rated capacities” because of a failure to synchronise and revamp other upstream and downstream facilities.

The loss of production of 2.36 million tonnes of hot metal with a consequential loss of earnings of ₹810.38 crore because of “forced shutdown of blast furnace No. 2 because of non-integration of upstream and downstream plants,” was also noted.

RINL reportedly delayed initiation of tenders and award of contracts for upstream and downstream plants, resulting in a mismatch between the production capacities of different units and an additional cost of ₹789 crore (approximately) for coke procurement.

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