SAIL expansion expense down Rs 26k cr

NEW DELHI: The country���s largest steel company may end up doubling its capacity at rates much lower than the estimated cost of Rs 80,000 crore, thanks to the global financial slowdown, said a government official who didn���t want to be identified.

The public sector Steel Authority of India (SAIL) had originally planned to double capacity by 2010, at an estimated cost of Rs 54,000 crore. But this had threatened to go up to Rs 80,000 crore early last year when overbooked Europe-based equipment suppliers increased prices.

However, with the changed market dynamics, SAIL expects to meet its target at costs close to the original estimate.
���The global economic slowdown has had a positive impact for SAIL. Equipment suppliers are now willing to offer larger discounts and are also promising timely delivery. As per initial calculation, this could reduce our expansion cost substantially,��� said the official, working with the ministry of steel.

SAIL has begun renegotiating equipment purchase deals that have not yet been finalised and is even exploring the possibility of getting discounts on existing supply deals. The move is aimed at getting best bargains from suppliers who are also facing demand compression and looking desperately for buyers.

SAIL���s expansion and modernisation programme involves taking up its present steel-making capacity from 15 million tonnes (mt) to over 26 mt by 2010. Roughly half of the orders for equipment have been placed, and work on the remaining lot is being finalised.

Equipment is a big cost element in SAIL���s expansion projects as it involves expanding production lines, putting up new ones and erecting new state-of-the-art blast furnaces. SAIL sources almost 80% equipment from the domestic market while the remaining comes from a select band of overseas suppliers.

While attempting to reduce the cost, the PSU has also staggered completion of its expansion plan. Against the target of increasing steel-making capacity by 2010-end, SAIL may now even overshoot the 11th Plan ending March 31, 2012. The company earlier decided to complete the plans by 2012, but under pressure from the steel ministry, it compressed the projects for completion by 2010-end.

When finalised in 2004, SAIL planned to invest just Rs 40,000 crore for expanding its capacity. SAIL���s expansion includes ramping up capacity at all its five steel plants at Rourkela, Bokaro, Burnpur, Bhilai and Durgapur. In fact, the prime minister laid the foundation of a new steel plant at Bokaro in April.

The SAIL board has also approved a number of projects as part of the expansion. It is likely that clearance of new projects may be put on hold and those approved would be implemented slowly.