JVSL is presently seeking Rs 703 crore from the institutions. This includes Rs 456 crore which is calls-in-arrears, because investors did not pay up the remaining calls on their subscriptions to equity and debentures and the rest due to the promoters' inability to tie up their full requirementof funds. The shares issued at par are quoted at Rs 3 on the stock exchange.

The project, which included a pellet plant, has been in financial difficulties from the beginning. The appraisal note documents the number of times the company could not tie up the funds that it was to bring in and had to approach the institutions for more money. At the time of the note, JVSL as well as the JTPCL power project have payment overdue to the institutions.

The Corex I and Corex II modules were to start production of hot rolled coils in October 1997 and April 1998 respectively. The Corex I was commissioned in October 1998, but had to be shut down soon after because of technology problems and will be re-commissioned in May 1999.

Interestingly, with regard to JTPC Power which was supposed to reduce electricity costs for the hot-rolled coils, the appraisal note says that "there are dissension between Jindals and Tractabel", which need to be resolved early.

These facts need to be seen in the context of the assertion inthe institutions' appraisal that though the capital cost of JVSL is higher because of the use of Corex technology, its operating cost would be lower due to it and because of cheaper sources of raw materials and lower power tariff because of the use of Corex gas. In fact, the entire project was conceived with high profit margins on the basis of the cost-efficient steel technology which has already turned very costly and yet failed to take off. It may be pointed out that when the Jindals opted for Corex technology it had not proven its profitability anywhere in the world. (Mr Sajjan Jindal, JVSL managing director insists that two Corex technology plants are operating at 92-per cent capacity internationally.)

The appraisal note also establishes that the high floor price for hot-rolled coils, which is the subject of huge political controversy in recent times, is the basis on which the JVSL expects to operate at full capacity and earn a profit of "Rs 298 crore" in the next six months and hence worthy of freshfunding.

Among the conditions laid down by the institutions, is a stipulation that JISCO should bring in Rs 163 crore which is the calls-in-arrears of the equity flotation of Rs 680 crore and another Rs 199 crore as equity contribution which includes Rs 150 crore which they have failed to bring in so far. Already, the entire promoter funding of JVSL has come from money diverted from Jindal Iron (directly or through a subsidiary called Sun Investments) and from Jindal Strips and Saw Pipes though a series of cross holdings. Fresh funds from the promoters can only come through this route.

In September 1998, at the Heads of Institutions (HIM) meeting it was decided that completion of projects by the Jindals was of paramount importance and they should be given fresh funds (Rs 492 crore in addition to the total exposure of Rs 2,076 crore of nine institutions and banks) subject to conditions such as the promoters pledging their shareholding with IDBI, that advance from JISCO as unsecured interest free depositswill not be withdrawn until the promoters bring in their contribution.

The IDBI note also recommends other conditions such as the appointment of a concurrent auditor and an Independent Engineer, both of which probably ought to have been done long before the project cost bloated so much and suffered delays in planning and execution.

However, after a cost overrun of a huge Rs 2,000 crore in just four years, the institutions have finally asked for a viability study to be conducted on the JVSL project. One of the aspects that the viability study ought to look into is the raw material purchased by JVSL for captive consumption from the Jindal Iron and Steel Company (JISCO), whose profit margins have surprised even the institutions.