Based on current trends, SAIL will end the current fiscal with a loss of around Rs 700-900 crore, unless it can mobilise some funds through business restructuring. Now that trade unions have softened their stand on business restructuring, SAIL is likely to push through some of the proposals before the end of the current fiscal.

Senior SAIL officials are hopeful that funds available from business restructuring would help to wipe out losses totally and the company would be able to break even this fiscal.

The optimism of the SAIL officials is supported by an analysis of the profitability variance of the company over the past few years. The highest negative variance of Rs 1,767 crore was recorded in 1998-99. This declined to Rs 102 crore in 1999-2000 and during the current fiscal there would be a positive variance.

Three factors had contributed to SAIL's losses over the past few years: higher cost of production, lower sales realisation and higher interest and depreciation burden.

The company has shown positive results on two of these counts. First, market realisations have improved, in spite of the markets being sluggish. This because of more focussed marketing. Prices of flat products have been under pressure internationally, but the long product market has been steady and some signs of improvement are there. Second, with the financial restructuring, SAIL has reduced its debt burden and as a result, the interest burden has come down after many years.

The areas of major worry of the SAIL brass now are the rising cost of production and higher outgo on employees. In spite of cost control savings of Rs 713 crore and benefit of Rs 40 crore as a result of higher volumes of production, higher input costs have added to the cost of production by Rs 550 crore in 1999-2000. Cost escalations in earlier years were also of a toll order.

Since future market realisations would, to a large extent, be governed by global conditions, hopes of any major upswing are dim, steel industry watchers believe.

In such a situation, SAIL has to thoroughly rework its cost of production and take drastic measures to curtail expenditure. SAIL insiders feel that major cost reduction has come about through reduction of cost of imported coking coal, reduction in the use of coke and lower energy consumption. There are other avenues for reduction in costs that need to be explored and implemented with devotion.

SAIL's rising employee costs have been reflected for the first time in the variance analysis for 1999-2000. The company is already in the process of negotiation with its employees for wage revision. Wage revision had been kept on hold since January 1, 1997. There is no way by which its management can avoid the wage rise. Failing this it picks up a quarrel with the employees which may affect its business restructuring proposals. But the heavy outgo in this area has to be matched by further reduction in cost of production, as otherwise SAIL runs the risk of being out priced from the markets.

SAIL has plans to drastically reduce its manpower from the present 159,000 to 100,000. If the government rolls back the retirement age from 60 to 58, it will help the company to downsize.