Idea of setting up PSU steel behemoth may be scrapped

New Delhi, Aug 4 | Updated: Aug 5 2005, 06:36am hrs
The governments intent to create a public sector steel behemoth through mergers and acquisitions of smaller entities is likely to be reworked.

Instead of creating a single large public sector steel entity engaged in the entire vertical chain of the sector, the Centre is now thinking whether it will be better to develop two or more large PSU entities in similar line of activity to counter competition that is likely to be increased after MNC projects go on stream in the country.

According to sources, the change of thinking has also been forced as the idea to merge Rashtriya Ispat Nigam Ltd (RINL) with Steel Authority of India Ltd (SAIL) does not find any taker either with formers workers union or with the Andhra Pradesh government.

Earlier, the steel ministry had indicated that it was in favour creating a single strong PSU steel entity through mergers of acquisitions revolving around countrys largest steel maker SAIL and had even indicated to a possible merger of RINL with it. u

The sources said that if two company theory had got the ministrys approval, both SAIL and RINL would be allowed to grow vertically through M&As. This would seal the fate of RINLs possible merger with SAIL.

Moreover, this would also open the process of merger of some smaller steel PSUs with RINL.

The ministry has already approved Rs 8,200 crore expansion plan of RINL to increase liquid steel capacity from 3 million tonne (mt) to 6.3 mt without indicating whether it would merge with SAIL. RINL is also expanding capacity to 7 mt by 2007-08 and to 10mt by 2011-12 bringing it in line with other larger PSUs.

Earlier in his letter to the steel minister, Andhra Pradesh chief minister has also suggested merger of Nilanchal Ispat Nigam Ltd (NINL) with RINL rather than merging it with SAIL. He has also suggested Centre to merge Visweswaralah Iron and Steel and Salem steel plant of SAIL under RINL alongwith NINL so that two big PSUs in the country can produce steel at competitive prices to meet the growing infrastructural requirements of the country.

It has also been suggested that since SAIL is already a large PSU with concrete plan to expand capacity to 20mt by 2011-12, adding additional large capacity through mergers would not be feasible.

Moreover, with clear geographical advantages of both RINL and SAIL would permit them to scale up operations further and to compete in the market with other players without directly interfering in each others territories.