A roadmap has been charted for NINL to catapult to a steel making capacity of ﬁve million tonnes per annum (mntpa), up from one mntpa now. The capacity ramp up needs investments of the order of INR 250 -300 billion Neelachal Ispat Nigam Ltd (NINL), a public sector steel maker and the largest producer cum exporter of pig iron is staring at a bleak future. Despite being a proven asset with consistent production parameters and a captive iron ore mine in its kitty, the integrated steel unit at Duburi in Odisha’s Kalinganagar steel complex has been let down by weak financials. Depressed market conditions have seen the steel company posting losses since 201213. NINL, where state run trading firm MMTC is the largest equity holder, has a chequered history of operations. The strategic location of the steel plant coupled with its high grade iron ore deposits at the back end has lured bigger steel makers like Steel Authority of India Ltd (SAIL) and Rashtriya Ispat Nigam Ltd (RINL) to have controlling stakes in the project. Both SAIL and RINL have made hostile but unsuccessful bids to acquire this asset, purportedly with an eye on the captive iron ore mines.
With 49.78 per cent stake, MMTC is the biggest shareholder in NINL. Two Odisha government PSUs- Odisha Mining Corporation (OMC) and Industrial Promotion & Investment Corporation Ltd (Ipicol) between them have combined equity of 27.61 per cent. A roadmap has been charted for NINL to catapult to a steel making capacity of five million tonnes per annum (mntpa), up from one mntpa now. The capacity ramp up needs investments of the order of INR 250 300 billion. Apart from debt financing by banks, the expansion needs substantial equity infusion by the lead promoters in NINL. But given NINL’s stressed balance sheet, bankers would be hesitant to advance credit. MMTC for long has been dithering on its equity infusion in the steel PSU. This has jeopardised NINL’s future operations. Lack of equity infusion by MMTC has prompted none less than the Odisha chief minister Naveen Patnaik to escalate the matter to Union commerce and industry minister Nirmala Sitharaman. Patnaik has underscored the need for additional equity support of INR 3 billion to NINL by the promoters to help the steel maker wriggle out of an acute financial crisis.
To come out of the financial rut, NINL has taken a string of measures such as refinancing its existing project loan under RBI’s 5/25 scheme. While stipulating the scheme, the bankers have put forward a pre-condition that the promoters have to infuse additional equity of INR 3 billion. The Odisha government has already approved the infusion of INR 0.8 billion equity by OMC in the past two years as pro-rata share by OMC. However, such an equity infusion is subject to MMTC contributing INR 149.34 crore as its share. NINL’s growth and survival is pivotally linked to its 3700 employees. Earlier, in January this year, the Odisha government has also executed a mining lease for iron ore in NINL’s favour to provide assured supply of iron ore.
Steel PSU NINL’s plan to expand steel capacity from 1.1 million tonne per annum (mntpa) to five mntpa has been marred by slump in the steel market. NINL, the biggest producer and exporter of pig iron was finding exports unviable due to cheaper supplies from China and Ukraine. The company has been posting losses since 2012-13 and closed 2015-16 with a steep loss of Rs 334.53 crore.
As per estimates of Mecon, fund for NINL’s first phase expansion has been worked out at INR 56 billion.
SAIL’s bid to acquire stake in NINL dates back to July 2005 when a committee of secretaries (CoS) had recommended the merger of NINL with SAIL as per a proposal by the steel ministry. Alternatively, the ministry had suggested inducting another PSU Rashtriya Ispat Nigam Ltd (RINL) as a strategic investor in NINL. In May 2009, the ministry revised its proposal, suggesting that RINL should purchase 51 per cent equity in NINL from MMTC and other PSUs. But, the proposed merger of NINL with RINL fell through as MMTC failed to get the fair value of its share.
For the future, Mecon has prepared a techno-economic feasibility report on NINL’s expansion. As per the rough estimates of Mecon, the fund for NINL’s first phase expansion has been worked out at INR 56 billion. Out of this, the promoters’ contribution comes to nearly INR 10 billion. MMTC’s share would be in the range of INR 4-5 billion and the rest equity would come from other promoters.
NINL has chalked out a plan to achieve steel output of five mtpa in two phases. Full capacity expansion estimated to cost INR 250300 billion, is slated to be achieved by 2025.
Already, INR 36 billion has been invested on the NINL steel plant at Kalinganagar. Investment banker SBI Caps has projected that NINL would turn profitable in 2016-17 with stabilisation of its steel melting shop (SMS) and commissioning of its captive iron ore mines at Koida. The captive mine has 110 million tonnes of iron ore deposits and promises to save INR 2.5 billion every year for NINL.
The NINL plant has a capacity to produce 0.5 million tonne (mnt) of basic pig iron, 0.3 mnt of steel billets and also, 0.3 mnt of steel wire rods per annum. Instead of exports, NINL is selling more of its pig iron in the domestic market and is able to recover cost of production and stay EBITDA positive.