Centre guilty of Vizag steel plant’s sad state as protests rage against sale plan

There have been protests by thousands of workers against the disinvestment plan, prompting the Andhra CM to write to PM Modi to reconsider it; the Centre has to explain why it has not allotted captive iron ore mines to the steel plant, starving it of raw materials.

SAIL, extended deadline, disinvestment, 3 steel producing units, The Federal, English news website
The Vizag plant is India’s first shore-based steel plant set up in 1971. As per the Budget 2021-22, asset sales will be key to bridging the government’s yawning budget gap, which will widen to 9.5 per cent of the GDP this year | Representational image: iStock.

In the wake of massive protests, Andhra Pradesh Chief Minister YS Jagan Mohan Reddy has written to Prime Minister Narendra Modi requesting the Centre to reconsider its plan to disinvest Vizag-based Rashtriya Ispat Nigam. He has termed the unit, which is India’s first shore-based steel plant set up in 1971, “a testimony to the will of Telugu people.”

The YRSCP chief said his government is willing to work with the Union Ministry of Steel to protect the “jewel of Andhra Pradesh”. He has proposed three measures in his letter: Continuing operations to achieve a turnaround, allotment of a captive iron ores mine to the plant and financial restructuring. TDP MLA from Vizag north (Vishakhapatnam) and former minister Ganta Srinivasa Rao quit the Assembly over the issue.

Also read: Govt to sell part of its stake in LIC as part of disinvestment: Sitharaman

TDP chief Chandrababu Naidu has criticised the YSRCP government, asking what the state government is doing when the Visakhapatnam steel plant which “directly employs 18,000 permanent employees, 22,000 contract employees and indirectly employs millions, is being privatised.”


Hundreds of employees of Visakhapatnam Steel Plant took out a protest rally on February 5 against the proposed divestment. They demanded that the Centre withdraw its proposal and save the steel plant as it is one of the biggest and profitable public sector undertakings in the state.

It would appear there is a lack of transparency in the NDA government’s policy decision to sell off the Vizag Steel Plant to strengthen crony capitalism. It is the duty of the Centre to explain why it is planning to sell it, instead of trying alternative measures to help its survival. The livelihood of 25 per cent of population of Vizag depends on the direct and indirect employment generated by Vizag Steel. It is also doubtful whether the government would be transparent in accurate evaluation of the property before selling it to some big businessman.

Centre must explain

The plant covers 22,000 acres, a very big real estate resource, which is more than its value as steel production unit. It is unfortunate the executive estate considers every public enterprise more as a real estate than national wealth yielding enterprise.

First, the government has to explain why it has not allotted captive iron ore mines to Vizag Steel Plant. What has compelled the government, which allocated captive mines to private steel plants, not to provide one for its own plant? How have businessmen like Gali Janardana Reddy got mining contracts — they have extracted the iron ore and sold it to China to make profits for themselves. Why has he not been asked to sell first to Visakha plant?

The plant, one of the public enterprise Navratnas, has been starving for raw material despite the government being the 100 per cent owner. Why so? Successive governments, whether of the Congress or the BJP, have deliberately allowed the VSP to suffer losses and have then blamed it as non-profitable to be sold off at throwaway prices.

The government has banned Chinese apps, but it has not stopped the export of iron ore even though its own steel plants are without raw materials. Around 80 per cent of the export of iron ore is done to China. The government has allowed corrupt private contractors to corner profits, but has not cared for plants like the VSP. China and the US are not spending their natural resources, not extracting oil and iron ore but purchasing raw material from other countries. China is selling finished steel products from our own iron ore and dumping them in India. For China, our country is a dumping yard.

Breach of trust

Mines are national wealth, which means the past, present and future generations own it. A government is elected for five years and has no right to sell this property. It is just a manager of this property. Allotting mines to private people and selling iron ore is nothing but breach of trust. Is there any element of patriotism in this reckless policy?

Disinvestment means withdrawing from some shares of a public enterprise and allowing others to purchase them. In some cases, the government retains 51 per cent share, thus retaining the management of the companies. In other cases, it reduces its shareholding to 49 per cent, giving up its control in favour of select companies. Nothing of this sort is being done in the case of Vizag Steel Plant. The government plans to sell it completely, and calls it ‘disinvestment’, which is not the case.

The Centre did not give a rupee to Vizag plant after the initial investment of ₹4,900 crore in the 1970s. The plant had increased its steel production from 3.4 million tonnes to 7.3 million tonnes with its own funds and with bank loans, reflecting its financial strength. The RINL has paid back ₹43,000 crore to both the Centre and Andhra Pradesh as various taxes and dividends so far. One main reason for the losses is that the VSP has had to bear the interest burden of loans it took for increasing production. Another reason was that it had to purchase thousands of tonnes of iron ore every day for a higher cost as the Centre did not allocate mines to its own unit.

Lack of raw material

The Visakhapatnam steel plant has an installed capacity of 21 million tonnes per year, but has been operating with a production capacity of only 7.3 million tonnes. The basic reason for this underperformance is the lack of raw material. Unlike Steel Authority of India Limited (SAIL), Tata Steel, Jindal Steel and other such plants, the VSP does not have its captive iron ore mine. It has been depending on supplies from Bailadila mines being run by the National Mineral Development Corporation and importing coking coal from Austria.

The other steel plants have their own captive mines allocated by the government and they are able to get iron ore at a cost of ₹1,500 per ton, whereas RINL has been compelled to spend ₹7,000 per ton. As the VSP’s per day requirement is 20,000 tonnes, it has had to spend ₹11 crore (₹5,500 x 20,000) per day, incurring huge losses.

Also read: FM sets a target of ₹1.75 lakh crore from disinvestments

Instead of facilitating the supply of raw material by allotting captive mines, the government, in 2003-04, referred the company to the Board for Industrial Finance and Reconstruction (BIFR) for winding up due to mounting losses. Then there was a massive agitation by workers and the local people. The VSP was saved as it could make some profits.

The steel plant has a highly valuable asset in the form of 22,000 acres of land. At the present market value, each acre costs around ₹5 crore. So, the land value itself is more than ₹1 lakh crore and the machinery could be valued at another ₹1 lakh crore. Is the government ready to prove its honesty, transparency and accountability by fixing the price at ₹2 lakh crore or more for anyone willing to buy it? How does it value the sacrifice of 32 people who had laid down their lives for this plant? How would the government reward Kurupam zamindars who donated 6,000 acres for this plant?

Another question is: if it can have a budget of ₹34.8 lakh crore, why can’t it allocate funds needed for VSP to survive, develop and help economy of Vizag, Andhra Pradesh and the nation as a whole?


Get breaking news and latest updates from India
and around the world on thefederal.com