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SAIL's plants are linked to their own ore reserves

SAIL's plants are linked to their own ore reserves

In the pantheon of steelmakers in India, perhaps only one can claim to have more than enough land and iron ore, two of three vital prerequisites to ramp up production. It isn't any of the high-profile private companies but Steel Authority of India Ltd.

SAIL's Chairman Chandra Shekhar Verma SAIL's Chairman Chandra Shekhar Verma
In the pantheon of steelmakers in India, perhaps only one can claim to have more than enough land and iron ore, two of three vital prerequisites to ramp up production. It isn't any of the high-profile private companies but Steel Authority of India Ltd. SAIL, set up in 1973 as a holding company to run five integrated steel plants, each of which has 25,000 to 30,000 acres of land.

Most of SAIL's plants are also linked to their own ore reserves. These are enough to last another 25 years. In 2005, when the government asked a reluctant SAIL to make the ailing Indian Iron & Steel Company a subsidiary, SAIL got in return Asia's largest iron ore reserves at Chiria in Jharkhand.

World Steel Dynamics, a leading information service, has noted this strength. In a June 2011 ranking of global steelmakers, it says: "While new and expanded competitors are surfacing rapidly in India, SAIL will likely continue to benefit from ownership of sizable iron ore reserves and the use of new technologies to upgrade many of its older plants."

But for the third input, coking coal, SAIL is as badly placed as other Indian steelmakers. It buys a quarter of its coking coal requirements locally, and imports the rest. "In April last year, we were importing it at $127 a tonne, against over $300 a tonne today," says SAIL's Chairman, Chandra Shekhar Verma, who at one point was the general manager of the Delhi Stock Exchange and later BHEL's chief financial officer. To secure supplies, SAIL is looking for mines abroad.

Verma says SAIL has fared well after the liberalisation of the 1990s. "Earlier, whatever we produced, we were able to sell, without any consciousness of quality… today, we have to produce quality products at the most competitive price," he says.

There is a downside to being a PSU: SAIL's employee costs are 18 per cent of its revenues, against seven per cent at Tata Steel and three per cent at JSW Steel. But this will improve to 11 per cent once SAIL's current modernisation is completed by 2013.

And perish the thought of the government giving SAIL sweet deals. "We are not getting any commercial thing in any subsidised way," Verma says. Instead, being a PSU, it has to put up its prices on a notice board. Talk about competitive advantage, he grumbles.