Return
to Story Page
To print: Select File and then Print from your
browser's menu
Manish Saxena
Mumbai, Sept 17: SAIL plans to sell all its captive power plants to tide over its acute financial crunch. Sources in SAIL confirmed the move and added that SBI Caps has been appointed as investment banker to negotiate the deal.
Analysts estimate that the move could generate cash in the region of Rs 1,600 crore to Rs 2,000 crore. Considering that IDBI has, in its report for restructuring SAIL, predicted a total loss of Rs 900 crore in 1998-99, the move can very well result in profits for the company this fiscal.
The total installed captive power capacity at SAIL is 772mw: 302mw in Bokara, 140mw in Durgapur, 220mw in Rourkela and 110mw in Bhilai. This figure of captive power generation is apart from the power generation by the joint venture that the company has with L&T in Bhilai.
Further, the bulk of the 772mw captive power generation includes seven coal-based turbines bought between 1985 and 1989. A total of seven turbines of 60mw each were purchased during this period. Three were for Bokara plant, twofor Durgapur and one each for Rourkela and Bhilai. Industry experts say SAIL would fetch a good price as these turbines are quite economical.
They claim that the minimum life of a power plant is 25-30 years. Considering that these are just a decade old, they would still fetch them about Rs 2.5 crore to Rs 3 crore per mw of power.
The problem would be the valuation of some of the multifed boilers, which were bought along with steel plant in 1959. Nevertheless, insiders claim that after SAIL has been using waste gases effectively for producing electricity, using waste gases along with coal, the company has been able to substantially bring down the cost of power generation.
However, what will ultimately determine the valuation would be the degree of automation of the power plant. Company sources here are quite confident that their level of automation is comparable to the best in the country. Hence the valuation of the old power plants would also be quite favourable. Such a move would definitely improve thecash flow of the company.
On the steel front, the company has not been doing well since the last three years with steel prices dipping to their lowest levels. The price of hot rolled coil (HRC) in the international market has dipped to $230-$250 per tonne from $350 per tonne a couple of years ago.
This level is below the cost of production for steel units in India. Moreover, the demand which was projected to grow by 10 per cent per annum has stagnated, which in turn saw the company sink into the red in the first quarter of the current fiscal, despite holding the lowest inventory levels at one million-odd tonnes.
Bottomline may improve:
The power cost for SAIL at Rs 1,834.27 crore is approximately 11.27 per cent of the total cost of production. Selling this off would definitely yield cash but there is a chance that the company's power cost may rise in the future.
The cash generated would help the company reduce its costly debt and provide money for modernisation. The company needs immediatefunds for modernisation of the blast furnace as many of products are giving operating losses. Coupled with cost cutting in operations planned in 1998-99 for Rs 400 crore, the company may be moving towards profits this fiscal.
Nevertheless, the productivity at 96 tonnes of crude steel per man per year from a workforce of 176,147, is one of the lowest in the world. The low productivity would continue to hamper the profitability in long run.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
------------------------------------------------------------
This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
------------------------------------------------------------