Financial Daily from THE HINDU group of publications
Wednesday, Dec 04, 2002
`Kudremukh will find new openings to survive'
Mr S. Murari
BANGALORE, Dec. 3
THESE are troubled and uncertain times for Kudremukh Iron Ore Co Ltd (KIOCL). The company has been pitted against environmentalists ever since its mining lease in the Western Ghats expired in November 1999. On October 30 this year, it lost the battle for a new mining lease in the Supreme Court, notwithstanding strong support from the State and the Centre. KIOCL must cease mining in Kudremukh from January 1, 2006. With its lifeline cut off, there is a question mark over the very existence of the company.
In his last interview two days before he retired as CMD of Kudremukh Iron Ore Co Ltd, Mr S. Murari, who presided over the company's fluctuating fortunes for five years, shared with Business Line the unenviable position it is in, the financial implications and the options before KIOCL.
How is KIOCL coping with the Supreme Court verdict?
We were not contemplating that this company would have to close down. But some strategy would have to be evolved. And we have done that, so that even if the operations at Kudremukh have to close consequent on the Supreme Court's decision, the company will not get closed.
We should find some new openings. We have applied for some new leases in the Bellary region and in Jharkhand and Orissa. This should first get materialised in two years time... .
KISCO (its subsidiary Kudremukh Iron & Steel Co at Mangalore) is producing pig iron. It has a good demand and we are exporting it. Another one is the DISP (ductile iron spun pipe) project, which is to be implemented. Hopefully we will be able to start the project in a couple of months. So, there are lot of activities we can come up with.
What will be the impact of the court verdict?
We are assessing that.
We are contributing about 20 per cent in volume and about 30-35 per cent in value in the export of iron ore. In performance, we are ranked fourth among PSUs. Now the company is earning about $140 million a year. That will vanish. If it starts importing, it will be spending about $50 million at the minimum. The net foreign exchange earnings will fall.
The impending closure will affect employees. How do you plan to go about it?
There are 1,500 employees at Kudremukh and another 550 in Mangalore - totally around 2,100. We are looking at making the company more effective and identifying surplus manpower. The company may need to reduce another 500-600 people. We have already spent more than Rs 10 crore on VRS for relieving over 200 people in the last two years.
The company planned an investment of around Rs 1,000 crore for the Ninth Plan for the pig iron project, the DISP project, coke oven plant, recovery at Lakya Dam and iron ore mining in Ongole. What happens to these projects now?
We have not invested in any of these. We made these proposals thinking that the lease would be granted to us. The Ongole option is closed. It is a small deposit and it would not have been economically viable to begin big operations
As for Lakya Dam, that recovery project is also closed. Of the Rs 420 crore meant for the pig iron plant and DISP project, Rs 200-300 crore is already invested and the (pig iron) plant is in operation
The coke oven project is still an option that will hinge on what is to be done in the next couple of years. We have attached a little less importance to that project. Things have changed with this (verdict) and we have to reallocate (funds). Besides, if someone else is also willing to put up the coke oven plant, then we can become part of that instead of exclusively doing it.
Precisely when will the ore supply stop?
By September or October 2005. Though mining can be done up to December 31, 2005, it will taper off and the ore quantities will come down.
And when does the winding-up begin?
They have not decided anything about the winding-up process. A company of this size has not closed in this country and this is the first experience of its kind in many respects.
You had a long-term export obligation with Iran.
Yes, this was a 15-year contract that should end in 2006. We have to abide by the terms of the contract. (Lack of ore supply by KIOCL) may amount to some penalty of about $10 million. In fact, they (Iran) have also not made their offtake, so there are some claims from us, too. We have to find out how to deal with that. China is our biggest buyer. About three million tonnes or 66 per cent of our ore, which is $80-90 million by value, goes to China. There is a contract for three years, till next year.
What will be the fate of KISCO,which was planned to be merged with KIOCL?
KISCO will continue, it will not depend on KIOCL. We have made some arrangements to buy ore from somewhere and continue its operations.
The merger has not taken place and the proposal is with the Government. KISCO can survive provided the DISP project gets established, which
the Government has asked us to hold on till all the confusion is cleared. What do the coming years offer in terms of income, production?
For 2002-04, it could be a profit before tax of around Rs 100 crore. But for 2003-04, I expect it will generate a little over Rs 550-600 crore turnover at the current prices and should make at least Rs 60 crore of profit (for 2003-04).
That is less because we have been restrained from mining outside the broken up area. We will not get quality ore. Mining would be scaled down by 10-15 per cent. We would have been growing, probably put up the coke oven plant at Karwar.
Now fund generation is restricted, availability of ore is getting restricted and we have to make optimum use of whatever resources are there. And it requires some re-calculation.
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