INTERVIEW | After 21 mln tn capacity, SAIL aims to achieve 50 in 15 years with zero sales of semis: Chairman PK Singh

PK Singh has an onerous task. As Steel Authority of India Chairman, he steers many of India’s first Prime Minister Jawaharlal Nehru’s Temples of Modern India – the Rourkela, Bhilai, Durgapur, Bokaro and Burnpur steel plants. But in the marketplace, leadership is more an outcome of business acumen than history. It is this understanding that has helped Singh as he attempts to put a little bit of SAIL (back) in everybody’s life.

Moneycontrol caught up with the SAIL veteran at his office to know what had changed at the company and plenty has. Singh talked about how he and his team had gone out explaining to the workers why and how they needed to bear pain in the short-term to revive the company.

The Chairman told Moneycontrol that the company’s massive expansion plan was about to complete and the company was now drawing the roadmap to more than double its new 21 million tonne capacity to 50 million tonne in 10 to 15 years.

Singh said even as the company looked to expand further, it was also firm on reducing the sales of low-margin ‘semis’ (unfinished products) to zero in the coming years from its current share of 7 percent in total sales.

He said the proposed joint venture with ArcelorMittal, in the making for many years, would shortly come to fruition.

Edited excerpts:

You have now reported two successive quarters of profit. Tell us what changed.

We had undertaken number of actions in the company, there are many actions. I’ll cite a few. We had concentrated on the project completion quickly. We had concentrated on the ramping of production from the newer units. We had identified the inefficient and cost guzzlers in the organization. There we have reduced our production drastically or some of the units we have closed also.

Generally, PSUs and government sector are criticised for having high manpower. There also, in the last two years, there has been a drastic reduction in manpower cost, which has been done through the many measures that the company has undertaken.

Natural causes like the natural retirements has also helped. We had offered voluntary retirement to our employees and the percentage reduction in manpower cost has been achieved by increasing our revenues. We have brought down reduction in manpower cost to 15 percent from 22 percent.

Apart from that, we have also increased our revenues. So once the revenues increase, the percentage of manpower cost decreases. The rise in revenues was achieved due to more volumes and value added items like rails production.

In the past one year, our rail production increased by 35-40 percent. Other value added items are cold rolled products from Bokaro.

There has also been substantial improvement in production of plates from Rourkela. Our revenues have increased nearly 30 percent in the past one year. CPLY (corresponding period last year), is now Rs 56,000 crores, This has helped in reduction of manpower cost per ton and percentage-wise also.

We also took a number of in the marketing side, where we have identified the branches where our net sales realisations are higher. There are branches in our company where we get a better price for our product. There we have concentrated on more volumes and that has also helped us in increasing our revenues.

We are also selling semis, semi-finished products which fetch us lower prices. There also 15 percent reduction in the semi sales and similar emphasis will be there so that our low value items are sold less.

We don’t want any semis. We want to convert everything into finished products because that fetches a better price. Our mills are coming up. We will not be left with much semis. Semis comprise 6-7 percent of our volumes. We want it to be zero, whatever time it takes, one year, two years, three years. Every year, we are seeing a decline in sales of semis.

Pig iron is again a very, very low revenue item. There also, 40 percent reduction we have achieved in sales. Then on techno economic fronts, we have taken many steps.

How did the employees take it? What was their response?

A massive communication was undertaken. All my directors and I were involved and we had extensive communication exercises in all integrated steel plants, marketing and other units of SAIL. This has helped in communicating the real issues of the company to the employees.

They understood the intricacies and why company is doing bad, what needs to be done and why we should do it quickly. So that has helped. Now my employees are today quite aware of the financial position of the company. That is a new thing where the top leadership had been involved directly with the unions, workers, lower, junior officers, middle level officers, senior officers.

What about your customers, vendors?

We had several workshop interactions with our designers and architects for the new products that we have launched in the market. The steel ministry has also taken active steps so that these products are quickly absorbed in the market.

Your proposed joint venture with Arcelor is taking time to finalise. What’s taking so long?

We have already signed the term sheet and definitely we are heading towards definitive. It is a process which takes time because lot many issues are there and once you go for definitive. We are heading towards that and we have identified few sites also.

A team of ArcelorMittal recently visited our Rourkela steel plant. The plant will supply the substrate for the joint venture. The Rourkela plant will make  autograde hot rolled coil and the joint venture will be autograde cold rolled.

Our team is also going to visit within this month their plant in one or two countries in order to understand the technology and very shortly we will sign the definitive agreement.

Once definitive agreement is signed and after finalising the sites, we will take a call. We are also talking to the state governments. We are asking for some concessions and we will take a joint call.

When do you expect to start making profit on an annual basis? Any plans for debt reduction?

This year, we are going to make a profit. We have a debt of Rs 45,000 crore but from this year, there will be a decline in debt. These debts are for modernisation and expansion activities. We have already invested around Rs 53,000 crore.

This decision was taken by the government that we have to privatise VISL, Bhadrawathi; ASP Durgapur and Salem steel plant in Tamil Nadu. It was approved by the Cabinet and we are going ahead with that. Durgapur Steel Plant is at an EoI stage and for the rest, preliminary information memorandum is ready. We are going to float that also.

We are a large organization and we are in open competition. We are not dependent on the government. These decisions were also approved by the board. It’s fine that this was a government decision but it was also discussed in detail in the board.

Bhadrawati plant requires investments, a lot of investment is needed. ASP is also in the red and also requires investments. The situation is similar with  Salem steel plant. Investments are required in all those three plants in order to scale up the volumes and also to improve the quality of the products from these three.

We invested lot in Salem but the stainless steel sector became very bad and there are also a lot of mismatches in production at this plant. Right now, we are not in a position to invest in these three units because we have investment required in bigger plants. So the government has taken this decision.

Your private sector rivals are undergoing massive expansion and a lot of it through inorganic route, an option that is difficult for you. What is your expansion plan?

We are now 21 million tonne and have some steel making and mill work at Bhilai. In two-three months, it will start. That will take us to 21 million tonne saleable. Our next plan is to go for 50 million tonne in next 10-15 years. That is in a discussion stage.

It will take time. Adding almost 29 million tonne is a huge job. It takes time, it requires money, it requires everything. We are discussing that, of course it will be done in two stages, two or three stages. It will happen in phases. It will not be wise to go for such massive expansion in one go. The first phase has to be complete, start producing, start getting returns, then go for second phase.

How is your raw material supply situation?

We are self-sufficient in iron ore supplies and have our own mines and whatever we consume, we produce. We don’t buy any iron ore from outside. We are are buying coal from outside and almost of our 80-85 percent coking coal requirement is met from imports. We have one mine which is in Mozambique and that is a joint venture with three PSUs (International Coal Ventures). It  has started operations after a gap of nearly two years and will reach its rated capacity very soon.

Where are you importing coal from?

We import mostly from Australia, US, Canada and African countries. We are also trying to explore coal from New Zealand. We are trying to explore other countries also because we want to expand our vendor base. We don’t want to depend on few companies because we want our prices to be competitive.

You talked about steel consumption which remains very poor in India despite its obvious advantages. What do you think could be done to push its use?

We have had interactions with ministry of road transport, Railway on how steel can be used more. For example, now we are hearing that the crash barriers, especially in the hilly areas, the government is going in a big way to ensure that the roads have crash barriers in hilly areas and highways. government is going for crash barriers. So that will increase steel consumption in the country.

The quality of roads in our country has to be improved because in our country the number of vehicles are too high. It will be worthwhile if the capacity of roads are improved so that we can allow bulk carriers or heavy carriers on the roads. That will reduce congestion also.

Infrastructure is seeing a big jump in steel consumption. The misconception that steel is costly has to go from the mind. The government has introduced a new concept of life cycle cost because typically concrete bridges have a life of 35 or 40 years.

The life of steel bridges’ is much more. Some of the steel bridges are more than hundred years old and the repair of steel bridges is much easier. You simply cut out that area where it has become weak and weld a new, equal, similar design. It is not possible in concrete. Aesthetically also, it looks much better. Steel bridges are good to look at and it is completely recyclable. Steel is one thing which can be recycled.

If you are making bridges in every 30-35 years, you keep on making bridges. You have to build structures which last for 100 years or 200 years so that your energies are diverted for other things. But you keep on making bridges, you keep on making houses, you keep on making roads.

There's no point engaging manpower, revenue, time, resources only for doing one thing. Make roads which last for 50 years with very, very less repairs. Today we are making roads where every 5 years and then we have to repair. If we go for steel intensive infrastructure, life is much longer and once we compare the life cycle cost, it is cheaper and safer also.

Concrete will not be able to withstand earthquakes but steel structures will be able to do it.

Life cycle cost has come in. If you have to compare the life cycle cost and if it is cheaper, then we should go for that.

There are villages where there are no roads also but wherever we have roads also, the repairs, unlike city, the way you are getting attention in Delhi, similar attention you cannot expect in villages. So there it is very important that we should go for those type of roads which last for longer time. Once you have made a repair, then you should for continuous cast load and their life is much longer, much longer.

Secondly,there is a huge piling of foodgrains because of improper storage facilities. If we use steel, especially stainless steel, lot of foodgrains can be saved.

Then in developed countries, initial farming is done where seeds are converted into saplings because once we distribute seeds in the farm, most of it is eaten away by the birds. We have specialised farms where seeds are converted into saplings and such type of farms are there. There you need to cover that with a small net so that it is not spoilt by the birds and then it can be converted. This also consumes a lot of steel.