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Tapan Chakravorti
RANCHI, Sept 7: In a bid to reduce inventory, plants under the Steel Authority of India (SAIL) have intensified the move to clear dues of their engineering contractors by offering steel. The cash-starved steel plants' strategy appears to have succeeded to some extent as a number of such engineering firms have started lifting steel against their outstandings.
A SAIL source told The Financial Express, "SAIL's plants are not forcing contractors to lift steel. As the plants do not have sufficient funds to meet outstandings, an option has been offered to contractors to lift steel of their choice from SAIL stockyards against their outstandings."
The Ranchi-based public sector Mecon has undertaken a number of contractual assignments in SAIL plants. Mecon's assignment as consultant for Durgapur Steel Plant's (DSP) modernisation was completed in June this year. Its total consultancy fees was fixed at Rs 106 crore.
Mecon CMD LK Singhal confirmed that DSP owed the company a considerable amount and is lifting steelfrom the plant against such dues. A Mecon source said the company has lifted steel valued at Rs 1 crore from SAIL's Chennai stockyard last July for the coal-handling plant being set up in Tamil Nadu where Mecon has a turnkey assignment.
The Heavy Engineering Corporation (HEC) also has dues worth crores from SAIL plants. The company is also lifting steel and other materials from SAIL plants against their dues.
Meanwhile, the move to curb perks and privileges of SAIL executives, which was introduced last September as a cost-cutting measure, has benefitted a number of SAIL units.
The management of Bokaro Steel Plant has taken strong measures to implement cost cutting in its offices. The management has even withdrawn telephone facilities from residences of a number of executives. The STD facilities and tours of officials have been restricted.
SAIL's Ranchi-based research and development centre for iron and steel (RDCIS), in its inter-ofice memo dated September 5, 1997 to all departmental heads, had listedthe areas where cost-control steps will be enforced.
Need to tighten output level
At first sight, SAIL's innovative method will definitely ease its financial burden. In the first quarter, the steel major had plunged deep into the red. In addition, the continuing downward trend in steel prices means that the second-quarter results could only get worse. But one needs to ask, how did the inventory level rise in the company? Whether the inventory was made-to-order or for stocks? Having inventory levels of close to a million tonne in the midst of falling prices will only spell disaster for a company whose working capital consumes 12-15 per cent of the production cost. If the company continues to pursue policies of production for stock, small measures such as swapping steel for payments to contractors and reduction of STD bills will hardly be sufficient.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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