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Salem steel plant faces brittle future

Experts Say Plants Strained Record Makes Case For Stake Sale; Trade Union Leaders Assert Decision Will Affect Livelihoods

Salem steel plant faces brittle future


SSP employs around 2000 people including contract labourers. The NITI Aayog on Sept 20 had recommended the strategic sales of 22 PSUs including SSP. The strategic sales would reduce govt ownership in the steel plant to below 51% and allow a private player a major share. The proposal has been opposed by trade unions.

Disinvestment of public sector undertakings has been a long-standing desire of successive national governments. While NDA I under Atal Bihari Vajpayee took a bold step to sell off a few chronically sick/loss-making PSUs, the NDA II government has also been expressing its interest to dilute the government’s holding in several PSUs. This will achieve twin purposes: first, to save on the continuing losses suffered by several PSUs and second, to invite private investment to turn these undertakings around. The NITI Aayog has proposed the closure of 17 sick/loss-making units and to reduce government ownership to below 51 per cent in a few others.


The units include the Salem Steel Plant (SSP) of Steel Authority of India Limited (SAIL). Expectedly, trade unions have upped the ante. SSP is the product of political appeasement, devoid of economic rationale. The severe criticism of regional political parties on the neglect of investments in the south during the election campaign of 1967 led to the Congress losing its power in Tamil Nadu.


Soon after Indira Gandhi announced setting up three steel plants for the south — in Salem in Tamil Nadu; Visakhapatnam in Andhra Pradesh; and Vijayanagar in Karnataka. The foundation stone for the Salem steel plant was laid on September 16, 1970. But, these impulsive political actions of the Congress government were not based on serious feasibility studies.


For the Salem plant a make-believe study was done through M N Dastur & Co by the German technology company Lurgi for beneficiating low grade magnetite ore supposed to be available at the Kanjamalai hills near Salem. It did not make sense when high quality hematite ore was available in plenty in other parts of the country.


Mohan Kumaramangalam, the then minister of steel and mines, announced the formation of a separate company in 1972 again. In January 1976, the Indira Gandhi government announced the setting up of a rolling mill for the production of 32,000 tonnes of stainless steel. I remember the quip of then state minister of industry S Thirunavukkarasu at the inauguration of the plant in 1982: “Urukkalai kettom, uruttalai kidaithadhu (we asked for an integrated steel mill; but we got a rolling mill)”. The work of the unit involved importing stainless steel slabs and rolling them into stainless steel sheets and strips.


The raw material had to be transported from the port to the plant that was situated deep in the hinterland. The plant was also far removed from consumers of stainless steel — from manufacturers of dairy/ pharmaceuticals, food processing equipment to household appliances.


The next stage of setting up a hot rolling mill was cleared involving further expenditure. But, 46 years after its founding, SSP is still mired in losses. The huge investment of over `3,000 crore made with inadequate demand and hence sales, has been depressing its finances. Depreciation and interest costs are humongous and SAIL is understandably in no position to set apart on a continuous basis, larger funds for SSP.


Employees of SSP including contractual labourers have been resisting any attempt at rationalisation or privatisation.


And in the interest of protecting these few hundred employees, larger interests like the prospects of growth of the institution have been resisted.


A vibrant leadership can leverage the huge land resource of around 3,900 acres procured on the initial promise of an integrated steel plant. There are several areas for profitable expansion; one is to set up, along with the Indian Railway, a stainless steel rail coach plant. Yet another potential project relates to a thermal power plant as a joint enterprise of Bharat Heavy Electricals (BHEL), Neyveli Lignite.


Corporation (NLC) and SAIL. In view of the huge need for power for the industrialised western Tamil Nadu, Kerala and SSP itself, such an investment seems viable.

Neyveli is not far off, land is readily available and BHEL and Neyveli are cashrich. With the expanding prospect for power trading, the PSU collaborative venture can find custom from PSUs in the region and the railways.


Such concepts can receive support from progressive private leadership that would think out of the box. SSP is not competitive in terms of cost nor is known for its marketing thrust. It would thus benefit through such a disinvestment or even outright sale.


The DMK and the AIADMK have not been too much concerned with the larger interests of Central PSUs. They have been resisting efforts of disinvestment in the past. Remember the stiff opposition to divesting even a 5% stake in NLC?



After Congress lost power in TN in 1967, Indira Gandhi announced setting up of 3 steel plants in the south; the Salem Steel Plant was one them Foundation stone for the plant was laid on Sept 16, 1970 Initially the plant was meant to better the quality of low grade magnetite ore available in Kanjamalai hills near Salem In 1972, the then minister of Steel and Mines Mohan Kumaramangalam announced formation of a separate company with no serious product mix After the dismissal of DMK govt in Jan 1976, the Indira Gandhi govt announced setting up of a 72,000 tonne capacity rolling mill for production of stainless steel The equipment was supplied by Peugeot-Loire of France It involved importing stainless steel slabs and rolling them into sheets and strips In a later stage, hot rolling mill was cleared (3,64,000 tonnes) The plant’s steel melting shop can produce 1,80,000 tonnes of slabs per annum The products are used in industries like nuclear, petroleum, chemicals, fertilizers, pharmaceuticals, food processing, dairy, household appliances etc Despite a huge investment of `3,000 crore, SSP is still mired in losses



While the steel plant got its first rolling mill in the early 1980s, coin blanking and a steel melting shop were commissioned at a later stage. The plant has a total worth of `15,000cr

(The author is a veteran journalist and editor of Industrial Economist) Email your feedback to southpole.  Published at TOI on 26 September 2016


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