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Coal block auctions will lead to level playing field for all: CS Verma, SAIL

Chandra Shekhar Verma, chairman and managing director, Steel Authority of India (SAIL), talks about steering the company in the current tough times, when local as well as global demand is depressed. He shares his action plan for the next 10 years and talks about his five years at the helm. Excerpts:

SAIL has been battling stagnant domestic demand in recent years. How does the year ahead look?

Globally, steel production growth has been tepid with only 2% increase in the calendar year against 3.5% in the corresponding period a year ago. There is surplus capacity of about 23-24% as utilisation is low. Demand in India is better than what it is globally. In April-December, production has grown at 5.3%. However, there has been a surge in imports — to 7.4 million tonne (mt) from 4.6 mt in the first three quarters of the current fiscal. Due to the SIPA agreement, there is a lot of import from Japan and Korea.

After consumption peaked in China, the country has been exporting steel to India as well. The depreciation in the rouble has also led to greater imports.

The demand situation should settle down and it is not a great cause of worry. However, companies importing to India have to bear freight and logistical costs also and, hence, the surge in imports should be temporary. The demand scenario in India is likely to improve as the country and the emerging markets as a whole remain the demand centre. Our per capita steel consumption is abysmally low at 55 kg per annum against the global average of kg p.a., which will only improve as we catch up and urbanise more. Further, a number of new initiatives by the government will gradually boost demand. We have also taken steps to multiply capacity.

The government has decided to auction both iron ore and coal mines, but SAIL, being a PSU, would get the resources through nomination. Will the introduction of a reserve price impact SAIL in terms of production cost?

We are the sole bidder for the block reserved for steel sector among the mines earmarked for PSUs. We will also be taking part in the next round of auctions to procure more coal blocks. These auctions will provide a level playing field for all companies and facilitate faster development of coal blocks. We will be able to take the advantage of our own coal blocks as we have enough knowhow in the mining. Today, we are operating four coal mines and, along with the Mozambique mine, we are mining 30 mt coal on our own.

How much are you producing from the Mozambique mines? Are there plans for more overseas acquisitions?

We are not averse to acquiring global assets, but we have to keep an eye on location and market situation domestically as well as globally. We are getting 3-4 shipments of more than 1 lakh tonne currently from Mozambique and also working out the logistical issues, which will enable us to bring more coal from there.

How are the modernisation and upgrade plans coming along? What would be your capex for the next fiscal?

We have a planned expenditure of Rs 72,000 crore. Capex for the individual year has been Rs 8,000-10,000 crore per year and, this year, it will be about Rs 9,000 crore. We have prepared vision 2025 to enhance capacity to 50 mt from 23.46 mt, which will involve a total capex of Rs 1,50,000 crore.

funds will come through debt and equity in equal proportion as opposed to our current expansion plan, which is being funded with two-third equity and one-third debt.

What hurdles are you likely to face in achieving the 50-mt target by 2025?

The Rourkela and Burnpur plants have started producing. In conjunction with Bhilai, production will reach 23.46 mt per annum next year. Demand in India is not likely to slump in the foreseeable future — cement-steel mixing ratio is not adequate here as for every tonne of cement used in construction, only 0.3 tonne steel is used. In developed economies, the ratio is 1:1. India is slowly becoming quality conscious and there is a preference for pre-fabricated steel and cement structure. Considering that 50-60% of steel is used in the infrastructure and construction sector, as we move to more qualitative products, steel demand will only go up.

source:http://www.financialexpress.com