India: NINL’s Blast Furnace Off Operations as MMTC Withholds Cash Flow

Public sector steel maker Neelachal Ispat Nigam Ltd (NINL) has been finally made to bite the bullet. The steel plant co-promoted by trading company MMTC Ltd and two Odisha government controlled undertakings- Odisha Mining Corporation (OMC) and Ipicol, has gone for a shutdown of its blast furnace at its Duburi plant in Odisha’s Kalinganagar industrial complex.

The blast furnace has been inoperative now for two weeks. Sources said MMTC the largest promoter in NINL with an equity of 49.9 per cent, has stopped provisioning for the steel unit’s operating expenses after it filed its plan on the Bombay Stock Exchange (BSE) to divest its stake in the loss accumulating PSU. Market sources claim MMTC is also not paying for the salaries of NINL’s executives, throwing the future of the steel plant into disarray.

Besides MMTC, the other key promoters- OMC and Ipicol have also withdrawn financial support. Other central public sector enterprises (CPSEs)- NMDC, BHEL and Mecon who are minority equity participants have chosen to remain mute onlookers.

In the absence of cash flow, NINL is constrained to buy iron ore from the market to feed the blast furnace. As per an agreement, MMTC used to source iron ore from the open market and sell it to NINL. The arrangement was a bipartite one since sales of the finished goods produced at the NINL steel factory were canalised through MMTC. For all its purchase and sales operations on behalf of NINL, MMTC charged a commission of three per cent.

But MMTC has abruptly stopped procurement of iron ore for the NINL plant. NINL insiders say the company in the troubled context, is averse to risking sales of its product inventory through MMTC lest payments be stalled.

NINL’s shutdown is likely to spook the markets- both domestic and exports. The public sector steel player has historically been the largest producer cum exporter of pig iron. Shortage of pig iron could benefit other merchant pig iron producers like Sesa Goa etc.

Even in the past, the lack of adequate capital infusion has dogged the smooth operations of the NINL plant. Market sources say the plant was not generating enough cash flow to sustain itself and this has triggered speculation of its closure. With NINL almost up for grabs, it remains to be observed how many steel makers in the public or private sector are keen to take it over and turn it around. NINL’s chequered history shows both Steel Authority of India Ltd (SAIL) and Rashtriya Ispat Nigam Ltd (RINL) have made unsuccessful bids to acquire the ailing State Level Public Enterprise (SLPE) - NINL. Of late, JSW Steel’s name has been doing the rounds.