New Delhi, Oct 3 (IANS) The Prime Minister’s Office has spiked the Steel Ministry’s proposal to merge the Ferro Scrap Nigam Ltd (FSNL) with country’s largest state-owned steel maker, Steel Authority of India Ltd (SAIL), favouring strategic sale of the miniratna public sector company to expedite the disinvestment process and improve realisation for the exchequer.
FSNL currently operates in SAIL plants for extraction of metal slag and handling and processing of scrap. Due to the inherent synergy in their operations, the Steel Ministry was pushing for the merger of FSNL with SAIL. The steel maker itself had shown interest in the merger that would have made its expansion plan seamless as an important activity in the steel-making chain would have come under its umbrella.
“The PMO has favoured strategic sale of FSNL over its merger with SAIL to expedite the disinvestment process that has not covered any ground ever since October 2016, when the Cabinet Committee on Economic Affairs (CCEA) approved sale of 100 per cent government equity in MSTC, the parent entity of FSNL, to a strategic buyer. The concern is also that SAIL is itself under stress due to sluggish steel market with low prices and demand and any merger exercise would not only add stress on the steel maker, but government would also not realise good value for its shares,” said a government source privy to the development.
The plan in favour of a strategic sale than a merger would be a big embarrassment for steel giant SAIL as FSNL is relatively tiny in size and operations compared to the large scale of operations of SAIL. The integrated steel player has acquired various smaller units in past without facing any major difficulty. But owing to market conditions, the going has been tough even for SAIL. It needs to be seen whether SAIL would be given an opportunity to pick up entire government stake in FSNL.
As part of its drive to push the strategic disinvestment plan this fiscal, the government is already looking to sell 100 per cent stake in three special steel producing units of SAIL. The three units identified for strategic disinvestment are the Visveswaraya Iron and Steel Plant, Bhadravati (Karnataka), the Salem Steel Plant, Tamil Nadu, and the Alloy Steel Plant, Durgapur, West Bengal.
Poor market condition is now pushing the government to consider closure of Alloy Steel Plant, Durgapur, West Bengal rather than strategic sale.
FSNL is among the list of companies identified by NITI Aayog for strategic disinvestment. Unlike several units that have struggling operations and perpetually running into losses, FSNL is relatively healthy organization that is making its ends meet through profits generated each year.
In FY18, the net worth of the company stood at around Rs 186 crore with a net profit of Rs 8 crore. The company’s turnover that year stood around Rs 320 crores. Till FY 17, the company’s PAT was higher with FY17 closing with a net profit of Rs 23.75 crore.
The disinvestment plan for FSNL has gone into topsy-turvy ride ever since the CCEA approval in 2016. A core group of secretaries on disinvestment (CGD) in February 2018 first decided to merge FSNL with its parent MSTC instead of a strategic sale. Later in June 2019, the Steel Ministry pushed for merger of FSNL with SAIL. The PMO has now, in its latest review, directed DIPAM to expeditiously move for strategic sale.
(Subhash Narayan can be contacted at [email protected])