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Our Bureau

New Delhi , June 16

THE Centre on Thursday paved the way for a merger between state-owned Indian Iron and Steel Company and Steel Authority of India, with the Cabinet authorising the Ministry of Steel to initiate the process after taking approval of the Board for Industrial and Financial Reconstruction.

The Steel Minister, Mr Ram Vilas Paswan, had recently indicated that the Government was in favour of mergers and amalgamations among public sector steel companies so as to make these companies competitive and commercially viable.

"The Cabinet has authorised the Ministry of Steel to permit SAIL to initiate the process of merger of IISCO with itself after taking approval of BIFR," the Union Finance Minister, Mr P. Chidambaram, said after the Cabinet meeting. This, he said, would ensure availability of high quality iron ore to SAIL's steel plants.

Greater synergy: "With SAIL's financial and managerial capabilities and availability of potential with IISCO mines, collieries, large infrastructural facilities and good work culture, there would be greater synergy for capacity expansion and technological upgradation of the plant," he said. The board of directors of both SAIL and IISCO have already given an "in-principle" approval to the merger.

Investment plans: Responding to the move, the SAIL Chairman, Mr V.S. Jain, said that with the approval in place, SAIL would be able to finalise and implement plans for further growth of IISCO. "SAIL would invest in upgrading various facilities of IISCO at Burnpur as well as its collieries and mines. The Burnpur plant, which produces around 0.3 million tonnes of steel at present, will be upgraded to enhance its capacity to around 2 mt by 2011-12," he said.

IISCO, established in 1918, is one of the oldest steel plants in the country. The Government took over the privately owned IISCO in 1972 and an Act of Parliament transferred its shares to SAIL in 1978.

Turnaround: After several years in the red, the company was declared sick in 1994 and brought under the purview of BIFR. Subsequently, Industrial Development Bank of India was appointed the Operating Agency to examine its viability and to formulate a rehabilitation scheme for the company.

The financial and business restructuring package approved by the Cabinet on February 15, 2000 envisaged waiving of loans advanced to SAIL from the Steel Development Fund to a value of Rs 5,073 crore and Rs 381 crore from the Government. The waiver resulted in writing down of SAIL's assets to the extent of Rs 3,001 crore and loans advanced to IISCO from SAIL to the extent of Rs 1,566 crore and Rs 381 crore from the Centre. Further, an amount of Rs 506 crore representing interest written off in the past on loans to IISCO from SAIL was also written back into SAIL's books, resulting in no dues from SAIL on account of the Burnpur-based company.

IISCO has now registered a turnaround with the company reporting a provisional profit of Rs 40 crore during 2004-05. The company, however, has an accumulated loss of Rs 954.57 crore as on March 31, 2004 and negative net worth of Rs 620 crore.

Performing giant: SAIL reported a 171 per cent jump in net profit to Rs 6,817 crore in 2004-05, against Rs 2,512 crore during the previous fiscal. Net profit during the fourth quarter ended March 2005 surged 164 per cent to Rs 2,678 crore (Rs 1,014.28 crore).

The state-run steel giant has also announced a final dividend of 18 per cent for 2004-05, which is in addition to the 15 per cent interim dividend declared in January this year.

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