The half yearly results of SAIL recorded a loss of Rs 616 crore. Unprecedented in its history, and according to some, another nail in the coffin of the public sector behemoth. So what happened?

Can everything be blamed on the industrial slowdown? Did the PSU not change fast enough? Or was it not allowed to change fast enough? Is there a problem with SAIL's leadership and its strategy for the future?

What is ailing the Navratna SAIL, the potential global giant?

The answer is not too stunning. It's quite simple really. If the slide had not come in the last fewmonths, it would have happened later. Or sooner. The only thing that the industrial slowdown did was to hasten its decline.

The bells began tolling in 1991, when pricing and distribution controls were removed and the private sector was allowed to enter the steel sector. While consumption of steel has been stagnating at about 22 million tonnes in the last three years, capacity has been added every year by about one and a half million tonnes every year.

``SAIL suffers from some basic flaws which are part of its framework. These did not show when the demand was rising, there was little competition and dumping was of little consequence. But now when the going is rough, these problems are showing up,'' says a senior company official.

At one end, the price of steel products are falling, the sales are declining, and the revenues are falling. At the other end, the company is burdened by social and economic costs which can't be reduced without intervention from the Government. After studying the company, theDisinvestment Commission wrote in its report in March this year, ``Unless certain measures are taken...the long term financial health of the company will be under tremendous stress.''

SAIL bears a burden of Rs 450 crore every year as social costs for running facilities like hospitals, housing colonies and schools. Three loss-making subsidiaries which the Government forced upon the company are a drain on its resources. The Indian Iron and Steel Company's losses are estimated to be about Rs 250-Rs 300 crore a year due to depressed market conditions, by the Commission. Of these SAIL is meeting cash deficits of Rs 100 crore. For SAIL to be divested of these burden, the Government needs to delink the subsidiaries and write off the losses. SAIL's investments blocked in these companies would be freed allowing it to concentrate on modernising its operations.

The Steel Development Fund (SDF) is another millstone around SAIL's neck. The SDF is created from the sale if steel by integreated steel producers (only SAILand TISCO) and is spent on developing the steel industry. While the accruals to SDF stopped in 1994, the interest burden on the previous loans has become huge. As on March 31, 1997, the total SDF dues on account of loan and interest was Rs 5,755 crore for SAIL.

A proposal for financial restructuring of SAIL is pending with the Government. ``Until these changes happen, SAIL will fit enough to fight competition from the private sector,'' says an analyst of a financial institution. But this does not mean that the company can't do anything to save its bottomline. Critics of SAIL say that it still does not have a strategy for the future. They say that SAIL has not done enough to feed consumer demand. A glaring example of this is the automobile industry.

Only a fraction of the steel consumed by the growing auto industry is from SAIL. The reason? SAIL just doesn't make the kind of steel needed by the industry.

As an example ot its vision and strategy, SAIL says that it has spent Rs 12,000 crore in modernisingits plants at Rourkela, Durgapur and Bokaro so that it can produce better quality steel products. It plans to spend another Rs 15,000 crore during the Ninth Plan to meet the technological gap and meet competition. The market segment which it has ignored till now but plans to focus on include agricultural equipment, auto industry, white goods industry and the telecom industry. Its officials say that better technology will enable it to increase the proportion of steel produced through continuous casting from the current 44 per cent to 80 per cent by 2001. Continuous casting is a world standard which is energy and cost efficient, and produces superior grade of steel.

The company also has a high wage cost. It employs 1.83 lakh people which coupled with old technology has affected its productivity. As against an international standard of 350-400 tonnes produced in one man year, SAIL does only 94 tonnes. Labour costs account for 15-18 per cent of its cost of sales. About 34,000 people were to retire from SAIL inthe next few years, the increase in retirement age reduced the figure. SAIL is now busy reducing its workforce with voluntary retirement schemes.

Though sales grew marginally from 1995-96 to Rs 16,430 crore in 1997-98, the net profits fell from Rs 1,319 crore to 132.99 crore. The last figure was achieved though financial jugglery which otherwise could have been a loss of Rs 354 crore.

SAIL is now busy cutting costs. At the same time it is making the slow and tortuous shift towards value-added products which will make it more acceptable to customers in the future. If, in the mean time, the Government actually removes its financial shackles, SAIL could be back in the reckoning.It may still not be a winner. But at least it would be fighting fit.