A senior DSP official said the 1989 cost did not include elements like contractual escalation, variations in foreign exchange parity and other variations of statutory nature though contractually payable. Despite cost escalation and high interest and depreciation burden, DSP has started recording substantially high gross margins which is a clear break from the past when it recorded either negative or minimal gross margin, he said.

Although the DSP modernisation programme was sanctioned in March 1989 with a time-frame of four years, the work was completed in 1997. The project time cycle cost now works out to Rs 3,992 crore. The project would have cost Rs 3,992 crore if it was completed on schedule.

However, afteran increase of Rs 490 crore due to physical reasons and Rs 388 crore due to fiscal reasons, the cost has gone up to Rs 4,870 crore.

The turnkey concept has not allowed the increase in cost in proportion to the actual increase in volume of work at the detailed engineering stage, he said.

There was substantial increase in volume of work at the detailed engineering stage. Compared to the original indicative quality, the overall increase in concrete work was 77.88 per cent, in structural supply 36.88 per cent and in equipment supply 76.53 per cent. Moreover, disintegration of the erstwhile Soviet Union resulted in delays in supply of steel structures, equipment and refractories for blast furnace, sinter plant and basic oxygen furnace (BoF) packages and of equipment for raw material handling complex (RMHC).

As a result of these two factors, consortium partners and major contractors, as well as sub-contractors and sub-suppliers, faced acute cash flow problems.

The emphasis of DSP modernisation was onprimary zones of production. The imbalance in its product mix was duly considered while finalising the modernisation programme, by way of a new finishing mill.

However, the facility was not included in the final modernisation plan, in view of the need to keep the total estimated cost contained.

The production has doubled over the past four years as all the modernised units have performed to rated capacity or beyond on several occasions, he said. The best achievement of the RMHC, for example, was 11,116 tonne per day (tpd) as against the rated capacity of 11,000tpd, of new sinter plant 5,947tpd against 5184tpd, of blast furnace-2 2,332tpd against 1,820tpd, of blast furnace-4 2,705tpd against 2,340tpd, of BoF shop 51 heats and 2,802tpd against 50 heats and 5,360tpd and of continuous casting plant 25 heats and 2,802tpd against 25 heats and 2,576tpd. Major technoeconomic parameters, like gross energy consumption and blast furnace coke rate, have recorded substantial improvement, thereby ensuring lower costof production, he said. The gross energy consumption has gone down to 7.54 giga calories per tonne against the post-modernisation norm of 8.38 giga calories and blast furnace coke rate to 607 kg per tonne of hot metal against 700 kg.