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SAIL's Salem steel plant likely to close down

Sandip Das

The Steel Authority of India's stainless steel plant in Salem may close down its operation if the uncertainty about its divestment continues, sources said.

SAIL is exploring the possibility of forming a joint-venture with a strategic partner which can infuse fund into the loss-making unit.

However, serious differences between the DMK and the AIADMK in Tamil Nadu and trade unions such as Citu and Intuc have led to the stopping of the due diligence exercise by prospective bidders.

The Salem steel plant's losses have been mounting in the last five years and the company's cumulative losses increased from Rs 380 million during 1996-97 to Rs 6.25 billion during 1999-2000.

"If current losses are maintained, it may even lead to the closure of the Salem steel plant's operation unless a turnaround is attempted by a strategic partner," a senior SAIL official told Business Standard.

The official said that SAIL may not support Salem for long as its own financial performance has not been comfortable for the last couple of years. SAIL had incurred a net loss to the tune of Rs 7.29 billion during the last fiscal.

Based on global tender, Sail has shortlisted the Tata Steel-Usinor combine and the Jindal Strips-Avesta Sheffield for taking a stake in the company. Sources said that low competitiveness of the Salem steel plant due to the high cost of production has resulted in the erosion of export volumes, compared to earlier years.

"Given the current cash crunch, capital expenditure by SAIL for backward integration is not possible," a senior SAIL official said. The country's largest steel company is also planning to exit from non-core activities such as stainless steel production.

Sources also said the strategic partner in the joint venture would be bound by a pre-condition to absorb all the workers in the Salem steel plant. "Despite such assurances, the divestment process has not taken off and this will not only deter the shortlisted parties from going further into the process but also affect the business operations of the Salem steel plant," the SAIL official said.

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