The Comptroller and Auditor General has warned Rashtriya Ispat Nigam Limited not to again end in losses again because its sales of semi-finished steel, which have a far lower margin than finished steel, are gradually increasing as the company expands.
In a audit report ‘Capacity Expansion of RINL for the year ended March 2014’, it has pulled up the government-founded company for not planning rolling capacity for producing finished steel even as it started increasing its capacity from three million tonnes to 6.3 million tonnes in two stages.
The CAG reminded RINL it had been producing and selling ‘higher quantities of pig iron and billets with lower margins than finished steel due to insufficient rolling mill capacity’, which had earlier resulted in financial imbalance and sustained losses.
A spokesperson for RINL did not respond to emailed queries on the auditor’s observations.
“The accumulated losses crossed over 50 per cent (around Rs 3,626 crore or Rs 36.26 billion by March 31, 1998) of net worth and the company became sick in 1998-99,” CAG said in its report.
RINL wiped out its accumulated losses in 2005-06 with money from the government in capital restructuring.
With RINL having semi-finished steel capacity of 0.25 million tonnes, the company’s miscalculated expansion plans will lead to an increase of 0.43 million tonnes in this category, to its detriment, according to the CAG.
“RINL would be incurring loss of margin of Rs 52.70 crore (Rs 527 million) per annum,” the report added.
The CAG also slammed RINL for delayed expansion because of which the company had to forgo a gross margin of Rs 1,560.54 crore (Rs 15.6 billion).
Justifying the delay, RINL and the government stated it was due to a fire in a steel melt shop on June 13, 2012, which killed 12 people.
Rejecting this argument, the CAG noted the upstream and downstream units of the steel melt shop were far from ready at the time of the accident.
The CAG also criticised RINL for not following the government’s guidelines on preparing a detailed project report in spite of taking up an expansion plan of Rs 8,692 crore (Rs 86.92 billion), which led to an increase in the cost of the project.
