Though SAIL never officially comes out with the financial performance of individual plants, informed sources believe that except Bhilai none of its steel plants have earned profit this fiscal. Among the loss making plants, both Rourkela and Durgapur have incurred losses of around Rs 700 crore each, Bokaro about Rs 200 crore and two special steels plants at Durgapur and Salem as well as Visvesvaraya Iron & Steel Co, taken over in 1997-98 fiscal, together incurred a loss of around Rs 300 crore. However, Bhilai has posted a profit of more than Rs 300 crore.

The poor financials of SAIL are the result of oversupply of hot-rolled coils, sheets and plates as well as impact of heavy interest and depreciation burden arising frompast modernisation.

The first factor is, however, applicable to all Indian steelmakers. In 1998-99 fiscal, Indian steelmakers produced 10.6 million tonnes of HR coils, sheets and plates up to 20mm thickness. But the market, both domestic and foreign, could absorb only 7.5mt of Indian HR flat products resulting in an excess supply of 3.1mt.

This fiscal, Ispat Industries Ltd of the Mittals will add another 1.8mt capacity, raising total domestic capacity to 12.4mt. Market surveys indicate that maximum demand including exports would not be more than 8.5mt -- creating a surplus of 3.9mt.

SAIL was badly hit by a hefty price squeeze of about five per cent, coupled with poor export realisation. Net sales realisation has also declined, by more than 4 per cent. Meanwhile, input costs went up by around Rs 700 crore.

SAIL insiders say the Rs 12,000 crore modernisation of its plants at Rourkela, Durgapur and Bokaro began yielding results at the wrong time -- in the face of the market depression, SAIL had toshoulder a depreciation and interest burden of Rs 3,122 crore.

Both Durgapur and Rourkela have interest and depreciation burden of around Rs 800 crore each. Bokaro, however, had to shut down its blast furnaces and produce less. In 1999-2000, Bokaro is producing with full blast and hence it can make profit.

Bhilai's insignificant interest and depreciation burden did not have much impact on its profit.

However, the private sector Tata Iron & Steel Co also had a huge interest burden of Rs 301.56 crore and depreciation of Rs 382.18 crore. But it made a profit of Rs 282.23 crore.

The lesson is clear: SAIL needs a more aggressive marketing strategy, better financial management and internal discipline.

Both SAIL and Tisco have to bear very high cost of manpower and social infrastructure as they run townships complete with schools and hospitals. For example, tn 1997-98, SAIL had a salary and wage bill of Rs 2201 crore which increased by 11 per cent this fiscal. Social infrastructure costs the company Rs1,200 crore a year.

SAIL chairman Arvind Pande said recently in Calcutta that the company can again go back to profitability provided (i) the government clears its financial restructuring proposal, (ii) its plan to hive off power plants materialises and (iii) market demand picks up and cheap imports remain checked.

Steel secretary Ashok Basu has said that SAIL did not get, nor did it ask for, any government support in last several years but has contributed a lot in the national economy. Now, when it is in trouble, it can justifiably expect government support for capital restructuring.

About 32 per cent of SAIL's expenditure is on raw materials, 20 per cent on stores, spares, fuel and repairing jobs and 13 per cent on salaries and wages. Hence, major cost savings should come from these areas. This year it reduced costs by Rs 902 crore.

Higher manpower leads to inefficiency in operations. Therefore, manpower should be realistic. The same is applicable to Tisco.