On its last legs

IISCO, India's oldest steel plant, faces imminent closure.

SUHRID SANKAR CHATTOPADHYAY in Burnpur and Kulti

THE Indian Iron & Steel Company (IISCO), the wholly owned subsidiary of the public sector giant Steel Authority of India Ltd (SAIL), is on the verge of closure. Yet its management and trade unions, which together comprise the Save IISCO Committee, have not given up hope and are formulating plans to save the country's oldest integrated steel plant. IISCO, which was once quoted on the London Stock Exchange, and had the pride of place on the Calcutta Stock Exchange in the early 1960s, was referred to the Board of Financial and Industrial Reconstruction (BIFR) in 1994.

At the last meeting of the BIFR, held on September 5, 2001, SAIL and the Government of India tried to buy more time in order to finalise a joint venture partner for IISCO or alternatively work out a revival package for the company. According to sources in SAIL, the BIFR bench turned down the request and asked the government to show cause why IISCO should not be wound up. However, the bench gave SAIL and the Government of India two months to submit a tie-up proposal to Industrial Development Bank of India, the operating agency.

All attempts by SAIL to find a joint venture partner for IISCO have failed so far. On April 14, 2000, SAIL issued a global tender seeking a strategic partner for its subsidiary. Tyazhpromexort (TPE) of Russia, Broken Hill Proprietary (BHP) of Australia, and Mitsui of Japan were short-listed. However, TPE failed to secure the clearance from the Russian government, and BHP and Mitsui were evidently interested more in the company's captive iron ore and coal mines than in the revival of its plants.

On October 12, after a meeting with SAIL Chairman Arvind Pande in Kolkata, the management and trade unions of IISCO decided jointly to request the BIFR to extend the deadline for the submission of the revival package. The deadline set by the BIFR is November 23.

IISCO's iron ore mines at Chiria, Gua and Mandharpur are the best in the country. The ore deposits in Chiria constituting nearly two billion tonnes are the second largest such deposits in the world after those in the Urals. Apart from this, the company has three collieries, in Chasnala, Jitpur and Ramnagar. The deposits in the mines are sufficient not only to meet ISSCO's requirement, but also that of other steel plants in the country.

The Save IISCO Committee, which comprises all the five trade unions in the steel sector - the Centre of Indian Trade Unions (CITU), the All India Trade Union Congress (AITUC), the Indian National Trade Union Congress (INTUC), the Hind Mazdoor Sabha (HMS) and the Bharatiya Mazdoor Sangh (BMS) - and the IISCO Officers Association (IOA) feel that it was SAIL's indifference that bought about IISCO's downfall. Chandra Sekhar Mukherjee, chairman of the Save IISCO Committee, told Frontline: "Although IISCO was taken over in 1972, the Government of India did not make any concrete attempt until the late 1980s to modernise the plants at Burnpur and Kulti. There was a proposal to set up a plant for the blast furnace in 1978, but that never materialised. If it had, then the Burnpur plant would have been the best steel plant in the country at that time." Malay Mazumdar, manager, electrical machinery, and former chairman of the IOA, pointed out that IISCO was the oldest iron and steel plant in the country. He said that while other SAIL plants set up long after the IISCO plant had all been modernised, IISCO was not. Mazumdar asked: "What is this but step-motherly attitude on the part of SAIL towards IISCO?" K.V.R. Raju, senior manager (projects), does not accept SAIL's plea that its hands are tied, itself being in the red. "SAIL is in the red from 1997-98. But what did it do for IISCO when its net profits had reached a level as high as Rs.1,300 crores before that?"

Most of the IISCO employees feel that the company had not been properly represented at BIFR meetings, as the IISCO board does not have any member who belongs to the company itself. Apart from two representatives from the Union Ministry and one from the State government, all the other members of the IISCO belong to SAIL. The executive director (incharge) is only an invitee-member with no voting power.

The Save IISCO Committee feels that if SAIL and the government of India give it five years time without interfering in its running, and allow it to reconstitute its board and choose its own Managing Director, the committee will be able to turn the company around and then return it to the government. "We have talked to Southeast Asia Bank Corporation of Australia and it is willing to lend $500 million at 5 per cent interest for a period of 10 years. The people here are dedicated and hardworking. With their support we will be back in the black again," said Chandra Sekhar Mukherjee. The newly appointed ED(IC), A.K. Jaiswal, told Frontline: "We need help from every quarter. So far there have been a number of meetings with the State and Central Governments but none has given us any assurance of assistance. If they do, then I am sure something can be worked out." He added that the work culture in the company is excellent. "It may be that there is so much cooperation from the side of the workers because the times are so bad, but it is commendable nonetheless," he said.

APART from a dedicated workforce, IISCO has certain logistical advantages. For one, its location is ideal. The networks of the South Eastern Railway and the Eastern Railway along with the Grand Trunk Road make it extremely well-connected. The Kolkata port and the Haldia port are proximate and there is no dearth of water and electricity thanks to the Damodar river and the Damodar Valley Corporation (DVC). "With all the advantages and the potential that IISCO has, it is sad that we are in such a mess," U. Dasgupta, senior manager (projects), told Frontline. "In the late 1970s, my colleagues and I would talk of modernisation, then in the late 1980s and 1990s we would discuss revival, and now we are just talking of survival," he added.

Early this year, the public sector MECON Ltd, one of the most highly regarded technical consultancy firms in the country, prepared a revival scheme that would involve Rs.510 crores, including Rs.150 crores for a voluntary retirement scheme. According to MECON, if the package is adopted, IISCO would be able to make a turnaround in two and a half years. But SAIL drafted an alternative scheme, raising the fund requirement to Rs.1,081 crores including for a voluntary retirement package of Rs.540 crores. In the last 23 years, as many as 13 modernisation and revival packages have been drafted by consultancy firms such as M.N. Dastur, but not one was accepted and implemented.

Today IISCO has 25,000 permanent employees and if casual labourers are also included, the total strength will be close to 30,000. In the early 1960s, when the company's Burnpur plant was working at its full capacity of one million tonnes a year, such a large workforce was required. But now, when the production is around 30,000 tonnes a year, a drastic downsizing of the workforce is considered essential. For over 37 per cent of the company's income is spent on wages. According to estimates made by SAIL, the number of permanent employees should be cut down by at least 9,000.

With practically all the machines becoming obsolete and the cost of producing a tonne of steel standing at Rs.10,000 which amounts to Rs.1,500 more than what would be required to maintain a minimum margin, only large-scale modernisation of the Burnpur and Kulti plants can save the company. Out of the four blast furnaces in Burnpur, two small ones made in 1922 are in working condition, though their operating capacity has deteriorated. However, the two medium-sized furnaces, built in the 1950s, need immediate relining, which will cost around Rs.40 crores. "We face the constant danger of a major disaster. Repair work in the blast furnace has to be carried out immediately," said Malay Mazumdar. In 2000-2001, IISCO incurred a loss of Rs.187 crores, as against Rs.210 crores the previous year.

According to V.C. Dimri, the manager of the Kulti plant, an investment of Rs.75 crores would enable the manufacture of ductile iron pipes. "We can only make cast iron pipes which have no market now. SAIL has been saying all along that since IISCO does not have enough orders the plant is of no use. But such decisions should not be taken based only on the market situation. The demand for ductile iron pipes may fall and cast iron pipes may make a comeback. Besides, we are capable of producing ductile pipes given the required facilities," said Dimri.

THE origin of IISCO can be traced to 1874 when James Erskine founded the Bengal Iron Works and set up a plant at Kulti (in West Bengal) to produce pig iron. In 1918, IISCO, promoted by Burn and Company, came into being after changing hands several times. The manufacture of steel at Burnpur started in 1939. By the middle of the 1960s, IISCO, under the chairmanship of industrialist Sir Biren Mookerjee, was producing one million tonnes a year. However, production started declining and in 1972 it reached an all-time low of 431,000 tonnes. On July 4, 1972, the company was taken over by the Government of India. In March 1979, it was made a wholly owned subsidiary of SAIL.

The closest that IISCO got to a modernisation project was when a Rs.6,030 crore-project was approved by Prime Minister Rajiv Gandhi in the financial year 1987-88. However, the Congress(I) lost the 1989 Lok Sabha elections and the project fell through. In 1991 the scheme was revived when the Congress(I) came back to power, this time envisaging an investment of Rs.6,325 crores. The idea was to explore the possibilities of a joint venture partnership. In June 1994, even as the search for a suitable partner was underway, IISCO was referred to the BIFR.

As of today, the closure of IISCO is no longer a remote possibility. Should that happen, Burnpur will become a ghost town too. Over three lakhs people, who directly or indirectly depend on IISCO, stand to lose their livelihood. Not only the 25,000-odd workers and their dependents, but workers of smaller industries such as cement (there are 12 of them) re-rolling mills, refractories and input units would also be affected as these too would be shut down. According to government sources, the government itself would lose revenue to the tune of Rs.282 crores and banks and the Life Insurance Corporation of India would lose Rs.900 crores.