Slamming the massive Rs 5,059-crore waiver package (see table), most of it due to the financial overhang from Iisco, the ministry has said that SAIL should look at restructuring the assets of its Rourkela and Durgapur plants ahead of Iisco. This is because the cost of production (CoP) of Iisco's coke is lower than that of Rourkela, Durgapur and Bhilai. Iisco's CoP of hot metal and saleable steel is lower than that of Rourkela and Durgapur.

The ministry is also highly critical of the Rs 2,618-crore write down of SAIL's fixed assets, mainly from Durgapur and Rourkela, which forms part of the restructuring package. The recommendation for the write down was made by the Industrial Development Bank of India (IDBI) in connection with the modernisation package implemented between 1993-94 and 1997-98.

The ministry note, made available to The Financial Expressfrom the steel ministry, has argued that SAIL's assets have always been valued at historical costs and unless there is an overall revaluation of assets, it is impossible to arrive at a cost overrun figure of any credibility. The gist of the problem is the mismatch in output profile of the plants at Durgapur and Rourkela. The capacity of semi-finished steel has been allowed to go up massively without a corresponding increase in finishing facilities. To blame only Iisco for the ills is shortsighted, the note claims.

The note goes on to say that while IDBI has been rather quick in recommending a write-down of assets at the cost of the Steel Development Fund (SDF) and the exchequer, it is quiet about restructuring the Rs 300-crore loan provided to SAIL. Any restructuring package which involves a waiver of government loans (Rs 356 crore, see table 1) must take into account the IDBI loan, it claims.

On the basic issue of waiver of the SDF amount of a whopping Rs 4,705 crore, the ministry's basic position isthat it may attract legal hurdles. Reason: the corpus is outside the public account. The Rs 8,000-crore fund has been built up from contributions made by consumers of steel and is to be used for the benefit of the steel industry. It belongs to the consumers and, what is more, the amounts are loaned, at a concessional rate of interest, to steel units on the basis of a full legal agreement. Because of the inability to pay, the funds are rolled over.

The note has warned that public interest litigation (PIL) will immediately follow if a decision is taken to waive over half the total SDF corpus through a governmental fiat. Already, representations against such a waiver have come in from the entire steel industry.

The ministry, in fact, is for professional management of the fund by bringing it under the control of independent managers or a financial institution. The fund is now controlled by a managing committee of three bureaucrats, one each from the ministries of finance and steel and one from the PlanningCommission.

Quoting the McKinsey study of the workings of SAIL (see table), the note says that financial restructuring of the kind suggested will only save SAIL an amount of Rs 324 crore. The McKinsey report has called for annual savings of Rs 3,500 crore, a bulk of it to come from cutting down on operational costs, downsizing of work force and from heads like marketing and supply chains.

The ministry's argument, therefore, is that financial restructuring is not the only panacea for SAIL's troubles. It has to work on several fronts simultaneously. And the strategy of looking at financial reliefs as the way out is ill-founded.