Row Over The Privatisation Of Vizag Steel Plant, Explained

Telugu Desam Party (TDP) workers recently protested over a news report that said the party had changed its stance over the proposed privatisation of the Visakhapatnam steel plant.

The workers alleged that the article was written at the behest of the Yuva Jana Sramika Rythu Congress Party (YSRCP) and said the newspaper that published the report, Deccan Chronicle, is close to that party.

Days later, H D Kumaraswamy, the Union Minister for Steel and Heavy Industries, visited the plant and said privatisation was not on the cards. Chief Minister Chandrababu Naidu said the same.

This issue is a few years old. During the Modi 2.0 government, the Centre intended to privatise the plant as part of its disinvestment strategy. This idea was opposed by all parties in Andhra — TDP, Jana Sena, and YSRCP.

The steel plant employees went on a hunger strike, which continued even during the coronavirus pandemic. The Centre didn’t seem to budge, but the issue went under cold storage later.

Loss-Making Vizag Steel

Among the reasons stated for the losses incurred by Vizag Steel are that it has not been allocated any captive iron ore mines, mismanagement, and inadequate returns on certain investments.

The lack of captive iron ore mines has meant that the plant has had to depend on open market purchases and has, thus, been vulnerable to price fluctuations and supply issues.

According to a report (November 2023) in The Hindu, while the average cost of one tonne of iron ore is Rs 900, Vizag Steel purchases it from the market at Rs 4,000-5,000.

Vijaysai Reddy, a Rajya Sabha member of the YSRCP, said that the management had diverted Rs 2,000 crore to a wheel manufacturing plant in Rae Bareli, and Rs 360 crore was invested in Odisha Minerals Development Company in 2010.

The latter had not brought any benefit to the company; instead it had to pay Rs 1,000 crore as a penalty, he said.

Why People Oppose Privatisation

Like in the case of privatisation of many other public sector units, Visakhapatnam locals are worried about the possible loss of jobs and benefits if a private company takes over the plant. Thousands of families are dependent on the plant.

The people in the region also have an emotional connect with the plant. After the announcement of a steel plant in the region in 1963 by then-steel minister C Subramanium and Visakhapatnam reported to be a favourable location two years later, the state assembly passed a resolution calling upon the Centre to establish the plant.

But there was no progress in the months to follow. In October 1966, protests were called all over the state demanding its establishment. Thirty-two people lost their lives during the protests due to police firing and a large number of members of Parliament and the legislative assembly (MPs and MLAs), majorly from the communist parties, announced their resignations.

The foundation stone was finally laid by prime minister Indira Gandhi in January 1971. Land to the extent of 22,000 acres was acquired from 68 villages, and the first blast furnace was inaugurated by prime minister V P Singh around two decades later in 1990.

Why Political Parties Oppose Privatisation

Supporting privatisation is not in the interest of any of party, as it would antagonise a large number of voters. The issue is an emotional one. TDP MLA from Visakhapatnam North, Ganta Srinivasa Rao, even announced his resignation in protest when the cabinet cleared the decks for the plant's privatisation.

In assembly constituencies like Gajuwaka, where those dependent on the steel plant live in large numbers, support for privatisation could turn out to be the reason for a certain defeat.

Prime Minister Narendra Modi, too, steered clear of the issue during his campaign for the 2024 Lok Sabha election.

No Privatisation, What's The Solution?

As privatisation has been ruled out, the focus should be on making the steel plant profitable. Some argue that if other public sector units can be turned around, Vizag Steel could be rescued too. 

This was highlighted by former chief minister Jagan Mohan Reddy in one of his letters to Prime Minister Modi. He had written that the plant, which was once referred to the Board of Industrial and Financial Reconstruction, had improved its fortunes since 2002 and performed well until 2015.

The other proposal is the re-merger of Vizag Steel’s corporate body, the Rashtriya Ispat Nigam Limited (RINL), with the Steel Authority of India Limited (SAIL), which controls most of the major public sector steel plants.

Supporters of the merger say it would be a win-win for both. The RINL would get access to raw material from captive mines of SAIL, increased access to working capital, loans at lower interest rates, and support in research and development.

SAIL, on the other hand, would get access to a plant strategically located close to a port, which might reduce its logistics costs. Further, the Vizag steel plant has a substantial land bank of over 19,000 acres, which could be used for capacity expansion if needed.