Govt may set up funding agency for steel sector

With banks reluctant to lend additionally to the highly-leveraged steel sector, the government is evaluating the setting up of a funding agency exclusively for the sector much on the lines of Power Finance Corporation and the Rural Electrification Corporation for the electricity sector. The proposed entity could have an initial capital of Rs 2,500 crore and entail participation from all major domestic producers, sources said.

A committee has already been formed by the steel ministry headed by the chairman and managing director of state-run steel firm Rashtriya Ispat Nigam, P Madhusudan, in this regard and it met for the third time on December 31. The committee is likely to submit its recommendations in a month.

“The Parliamentary Standing Committee on Steel and Coal had recommended us earlier to look into the possibility of setting up a funding agency for the steel sector on the same lines as PFC or REC for the power sector. We have set up the committee, but no concrete decision on the formation of the agency has taken up yet,” a senior steel ministry official said.

The agency, if formed, would mainly fund capacity expansion projects of the domestic steel firms. The corpus of the agency would proposed to be gradually enhanced keeping in pace with the fund requirement of the steel firms. Paucity of funds is partly coming in the way for raising capacity of the domestic firms.

According to industry thumb-rule, around $1 billion is needed for creating 1 MTPA capacity, which would call for an investment of around $200 billion in the country’s steel sector in the next 9-10 years, as the country aspires to raise its capacity to 300 MTPA by 2025-26. However, sitting on over Rs 3 lakh crore debt, steel sector has no means to correspond with the government’s intent. The plight of the industry is so acute that they have recently pleaded for a moratorium on interest payment to the steel ministry.

Apart from Tata Steel’s recently-commissioned Kalingangar project and NMDC’s upcoming 3 MTPA project, which is likely to go on stream by June-July next year, steel sector’s capacity expansion plans has nearly been halted. Barring brownfield capacity expansion plans are also muted barring those by SAIL and RINL, mainly because the current plight of the industry caused by cheaper imports, lower demand and price.

Though global steel giants like ArcelorMittal and Posco had earlier evinced massive investment interests, which could have raised India’s steel-making capacity in a big way, FDI in the sector is still lagging behind.

While the industry is of the view that the government should have thought of setting up a lending agency long ago; some raise questions on the practicality and viability of the idea since steel is a deregulated sector and almost 80% of the country’s production comes from the private sector. Thus, steel could not be compared with the steel sector since power is a regulated area and government firms still rule the roost there.

“Which steel firm is making fresh investment now? What is the need of such a lending agency for financing capacity addition particularly at a time when domestic firms are not utilising even 70% of their rated capacity? If bank’s not lending is the logic, then they will certainly do so when the fundamentals of the sector will look up,” said a senior government official.

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