SAIL expansion, modernization costs shoot up by Rs6,000 cr

SAIL expansion, modernization costs shoot up by Rs6,000 cr


New Delhi: State-run steel behemoth SAIL’s finances may come under pressure due to cost overruns of whopping Rs6,000 crore in its expansion and modernization programmes even as the PSU is struggling to complete it by 2010.

“Steel Authority of India Ltd’s expansion and modernization (E&M) costs have shot up to nearly Rs54,000 crore from the envisaged Rs49,000 crore. It is unlikely to complete its modernization programmes in time (by 2010)," a source told PTI.

The source said the costs have shot up because Mecon, which had made recommendations for SAIL’s Corporate Plan-2012, had not firmed up the E&M costs nor had it factored in different aspects before submitting its suggestions.

This assumes importance amid reports of SAIL chairman S K Roongta assertions that the PSU’s expansion programme may face credit squeeze. “We are looking at different scenarios, but I have a lurking suspicion our debt costs may rise," the Financial Times had quoted Roongta as saying.

“The problem is that SAIL is not in tune with the realities. What is more worrying is that, at the current pace of progress, SAIL may not be able to complete its E&M programmes by 2010. The PSU’s procedures are more cumbersome than that of the government," the source pointed out.

Though Roongta did not speculate on how much higher the borrowing costs would be, the daily pointed out that higher interest rates could raise the company’s borrowing costs by up to $100 million every year.

Earlier, the Steel Ministry had told the Prime Minister’s Office the steel giant would be completing its E&M programmes by 2010 to raise its production to more than 20 million tonnes a year.

SAIL’s debt is likely to rise to $6-7 billion during the period, and until recently, the PSU was facing an estimated bill of $600 million every year for servicing the debt portions, the Financial Times said.

On the raw material front, the PSU was facing problems in securing the Chiria mines for itself, a matter pending before the court, while the iron ore reserves of the Dalli Rajhara mines in Chhattisgarh were getting depleted.

Meanwhile, SAIL has posted an 18% rise in profit after tax during the second quarter this fiscal at Rs1,700.24 crore. The rise helped the company achieve its highest-ever net profit of Rs3,225.36 crore for the first half of the fiscal, 14% higher than the comparable period last year.

The PSU’s steel plants recorded saleable steel production of 3.25 million tonnes, 10% higher in the second quarter as compared to the same period last year.