Let's take each issue separately. The first recommendation is that the company should be spilt into two SBUs -- one to focus on flat products and the other on long products. A close look at the financial performance of each plant of SAIL shows that traditionally, Bhilai and Bokaro have made profits, while Rourkela and Durgapur have turned in losses. The only time Rourkela made money was during the emergency -- when the plant was made to run at 100 per cent capacity utilisation. Today the management claims that after completion of the modernisation programme, the plant has been operating at rated capacity. But lower prices and higherfixed charges would again see the plant posting a net loss.

The problem, for both Rourkela and Durgapur, has been the presence of huge number of small players in the vicinity. These players have used excise duty anomalies to sell products cheaper. Such practices exist even today.

Even Bokaro is not expected to make money as realisations have fallen. The plant that can make money is the Bhilai steel plant as it caters mostly to the segments where there is little or no competition. For example, the rail beams are only made at Bhilai steel plant in the country.

Similarly, the H-beams are predominantly made in Bhilai steel plant, where it has got limited competition from Tisco. Seen from this point, it is difficult to understand what difference it would make to the SAIL bottomline whether there are two SBUs or the existing management structure is retained?

Speaking about the organisational structure, the report suggests that the board of SAIL should also be recast which would consist of two SBU chiefs,and directors for commercial, technical and finance functions.

The managing director of each plant would not find a place in the new board. The advantage accruing to the company would be in the form of centralised management. But it is well known fact that decentralisation is necessary for faster decision-making. As it is, even with the Navaratna status, SAIL management has limited autonomy. Increasing the centralised structure would result it further bureaucratisation.

Thirdly, the report talks about SAIL divesting its stake fully in the power and the fertiliser project. This again does not help SAIL's cause. The earnings from utility business at the time of commodity downcycle offsets the depressed earnings from the core business. Merchant bankers believe that for divestment of 49 per cent stake, they can get money ranging from Rs 700 crore to Rs 1,000 crore. But the tariff set for SAIL would be higher.

The fertiliser plant producing calcium acrylonitrile (CAN) is the largest of its type in the world.It uses the waste nitrogen produced in Rourkela plant for producing the fertiliser. The problem here has been that the fertiliser plant has become outdated with better nitrogenous fertiliser available in the market. SAIL does get some earnings from the plant. Analysts believe the reasons for divestment of up to 49 per cent of the stake in power and fertiliser is not just to raise immediate cash flow. Since the company has more or less exhausted the finances that can be raised from its balance sheet, the company is forming new joint ventures that can raise money from the market and invest it in the parent company. Since power is an infrastructure project, the interest rates would also be lower -- resulting in substantial savings for the company.

The other reported conclusions of the report are that the government should waive off the SDF loans, reduce inventory levels from 190 days to just 70 days and get out of loss-making units of IISCO, VISL and Salem Steels.Now SDF loans is a misnomer. The money in SDFbelongs to Tisco and SAIL as they had sold their steel at higher price and given the funds to the ministry for steel development. Once the central planning is scrapped - the money should be returned back to the company -- because other steel plants never gave contributions to the SDF fund.

Saying that inventory is to be reduced without having a clue about Indian market, which demands 100 different grades and sizes is silly.

Rather than work on the company itself, the first major issue that needs attention is the distribution system -- like setting up the service centres similar to that of USA. The balance sheet needs a restructuring similar to that in NALCO, wherein the equity was reduced by half. Privatisation is a must and so is keeping the two business of flats and longs together as realisations in one can offset the other. The reduction in excise duty would act as major impediment for SSI players who use the anomalies for depressing the realisations of the entire industry.