Revoke proposal to privatise Visakhapatnam Steel plant

 Vizag Steel Plant


Shri Narendra D Modi

Prime Minister

Dear Shri Modiji,

I enclose here copies of my letter dated 26-2-2021 addressed to your office and my letter dated 28-2-2021 addressed to the Finance Minister, expressing my concerns about the proposed divestment of government stake in Visakhapatnam Steel Plant (VSP) in favour of a foreign company, POSCO and another private company, whose identity is yet to be disclosed. The confidentiality clause in the MOU signed by the Steel Ministry with POSCO and the clause agreeing to overseas arbitration to resolve disputes that could arise from time to time, indicate that the Centre’s intention is not to take the public into confidence on such an important matter of public interest. It violates the letter and the spirit of the RTI Act.

Several decades ago, at the time of inception of the VSP, fertile agricultural land of more than 20,000 acres had been forcibly acquired from the local farmers on the ground that it was intended for a “public purpose” as defined in the land acquisition law in force at that time. It will be unlawful for the government today to change the character of that land by privatising it. It will amount to a breach of the public trust. There are thousands of the displaced farmers still awaiting employment in the steel plant as assured at that time.

With its technical expertise and its talented workforce, comparable to their counterparts anywhere else, VSP can continue tofunction in a viable manner, contributing enormously to the national and the State economies. Had the Centre allotted a captive iron ore mine to it, VSP would have earned much higher profits than now. Unfortunately, as a result of the step-motherly treatment meted out by the Centre to this Navratna PSU, it is forced to meet its iron ore needs through the more expensive route of purchase at market prices. As a result, its finances have been adversely affected.

Privatisation of the VSP will also run counter to the National Steel Policy (NSP) of 2017 which seeks to provide a leadership role in the steel sector for Central PSUs like VSP. If the VSP were to be privatised, Instead of encouraging it, the Centre would be changing its PSU character and doling out its very valuable resources, including land assets of an enormous value, precious machinery and the services of a competent workforce, to private entities. To resort to privatisation without taking VSP’s workforce into confidence would slso imply unfairly letting then down.

In my letters to the PM and the FM, I appealed to the Centre not to rush into privatising VSP and, instead, allot a captive mine to it so that it may function in a viable manner and make much larger contributions to the economy than at present.

Against this background, I find a somewhat disconcerting trend in the way the Centre is allowing valuable iron ore resources to be exported in large quantities at the expense of the domestic users.

Due to disruptions after the Covid-19 outbreak, iron ore production fell sharply by almost 44 million tonnes (MT) to 202 MT in 2020-21 vis-a-vis 246 MT in the previous year. However, surprisingly, the country’s exports increased by 62% to 60 MT against 37 MT in the previous year. Thus, it created an overall short supply of around 70 MT (after adjusting incremental exports and drop in production).

Surprisingly, about 92% of the iron ore exported goes to China. On the other hand, these days, we seem to be importing more from China, mostly in terms of several higher valued intermediate and finished products. In other words, India seems to be favouring China, more and more these days, by exporting a precious raw material like iron ore, rather than utilising that iron ore for domestic use, which would have permitted the Indian steelmakers to process the same into higher valued steel products for domestic use and possibly exporting a portion. Steel plants which do not have captive iron ore mines of their own like the VSP are affected most by this. This has the indirect effect of reducing the profitability of VSP at a time when the Centre is rushing into privatising the plant. It looks as though the Centre, whether deliberately or otherwise, is eroding the value of VSP which in turn will benefit its private buyers!

In my letter dated 3-2-2021 addressed to the Finance Minister, I had questioned the wisdom of the latest Budget decision to reduce the customs duty on iron & steel imports by 7.5%, which would also go against the interests of the domestic steelmakers.

The compound effect of the reduction in the Customs Duty on steel imports and the passive manner in which India is allowing China to import larger quantities of good quality iron ore raises serious concerns about India’s intentions in its policy towards China, at a time when the latter has adopted an aggressive posture on many fronts. In this connection, it will be of interest to peruse an article that appeared in Print, “Has India become China’s Colony?” ( Is India playing into the hands of China?

Coming back to the proposed privatisation of VSP, I would once again urge upon the Centre to consider withdrawing the proposal once and for all and ensure that a captive iron ore mine of good quality is allotted to it to enable it to enhance its profitability.

I feel that it will be in the overall national interest to regulate iron ore exports so as to maximise the domestic use of our iron ore resources to produce higher valued products locally.

The Centre should respect its own National Steel Policy of 2017 and accord a leadership role to the Central PSUs like VSP in the steel sector.

Such a response will be in tune with the public sentiment of the people of north Andhra Pradesh. In a federal system like ours, there should be no place for unilateral decision making.


Yours sincerely,

E A S Sarma

Former Secretary to Govt of India




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