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PROJECT REPORT ON
PROJECT MANAGEMENT WITH
CASE STUDIES
IN
BHILAI STEEL PLANT
Submitted to the AIT, School of Management in partial fulfillment of the
requirement for the award of degree
Of
Post Graduate Diploma in Management (PGDM)
In
Finance Management
Submitted by-
Ritika Agrawal,
PGDM batch (2007-09)
Apeejay Institute of Technology (AIT)
School of Management, Greater Noida (U.P)
Date………………..
2
Acknowledgement
It gives me immense pleasure to convey my heartfelt appreciation to the
institution. I sincerely thank the college for providing me with adequate
knowledge to take on this complex but interesting task.
I would express my extreme grateful towards the management of Bhilai Steel
Plant for providing me this opportunity to carry out analysis of one of its
ambitious projects. I would also like to thank the management and the staff of
Bhilai Steel Plant for their guidance and co-operation which they had
extended over the entire duration of my project.
I would take this opportunity to render my sincere thanks to Mr. B. P. Nayak
and Mr. S. S. Kshatriya who have been extremely helpful and co-operative to
share with me information and time which I understand was extremely
difficult. I would also extend my deepest gratitude and sincere thanks to Mr.
G. V. Rao, Mr. Lalit Khanna, Mr. Amit Sen, Mr. C. K. Agrawal and Mr. D.
Ghosh for their kind co-operation and help during the progress of the project. I
would sincerely thank my college guide Prof. (Mr.) R. K. Agrawal for his
consistent support and guidance from time to time, and he has played a
significant role towards the development of this report.
I also pay my deep gratitude and sincere thanks to Mr. Namdeo Barange
(Training Co-ordinator, BTI) who provided able guidance and ensured
uninterrupted training throughout the course of the project.
Finally, I would not have been able to finish my report without the support of
my parents, friends and my co-trainees in BSP. I thank them from the core of
my heart.
Ritika Agrawal
AIT, Greater Noida
3
Summer Training Certificate
This is to certify that Ritika Agrawal, a student of Apeejay Institute of Technology, School of Management, PGDM 3
rd trimester has
undergone summer training in our Organization (Bhilai Steel Plant, Bhilai) during April to June 2008 for a period of 9 weeks from
21.04.08 to 21.06.08. She was given a project entitled “Project
Management”, in the subject Area of Financial Management.
We would also like to mention that Ritika Agrawal completed the
summer training project work under the supervision of Mr. B. P.
Nayak (AGM, Finance Dept.)
We wish her all the best in completing her PGDM program.
………………..
(Signature)
Mr. B. P. Nayak (AGM, Finance Dept.)
Bhilai Steel Plant Date
4
Supervisor’s Certificate
This is to certify that Ritika Agrawal, PGDM 3rd
trimester student of Apeejay Institute of Technology, School of Management, Greater
Noida has undergone Summer Training at Bhilai Steel Plant for a period of 9 weeks from 21.04.08 to 21.06.08.
During the training period, the student worked on the summer Project entitled “Project Management” which was suggested and
awarded by the Mr.B.P.Nayak (AGM Finance deptt.) in the subject
area of Finance.
The survey, data collection and analysis work for preparing the
Summer Training Project Report has been carried out by the student in partial fulfillment of the requirements for the award of Post
graduate Diploma in Management (PGDM) by Apeejay
Institute of Technology, School of Management, Greater Noida, which is approved by All India Council of Technical Education
(AICTE), Government of India.
……………….. ………………………
(Signature) (Signature)
Prof. R.K.Agrawal Prof. R.K.Verma
Faculty Supervisor Director, AIT, Date: School of Management
Greater Noida (U.P)
5
Student’s Declaration
I hereby certify that the survey, data collection and analysis work
related to Summer training project Report on “Project
Management” has been carried out exclusively on my own efforts
under the guidance of the Company supervisor Manager, Bhilai
Steel Plant, along with the guidance of AIT School of Management Supervisor Mr. R.K.Agrawal
(Signature) Name of the student
AIT, School of Management
Greater Noida Date
6
Index
1. EXECUTIVE SUMMARY……………………………………………………….. 5
2. STEEL INDUSTRY – GLOBAL SCENARIO 7
3. INDIAN STEEL INDUSTRY 8
3.1. Introduction 8
3.2. Industry Structure 9
3.3. Types of Steel 10
3.4. Steel Markets – Production & Consumption 12
3.5. Prices 12
3.6. Current Scenario 14
4. STEEL AUTHORITY OF INDIA LIMITED (SAIL) 17
4.1. Major Units 18
4.2. SAIL‟s Growth Plan 19
5. BHILAI STEEL PLANT 23
5.1. Product Mix of BSP 24
5.2. New Products 26
5.3. The Cutting Edge in Steel Making 27
6. PROJECT FINANCE AND ACOUNTING
7. MARKET ASSESSMENT 28
8. NEED FOR CURRENT EXPANSION PLANS & PROEJCT DETAILS 30
8.1. Shortfall in Secondary Refining 31
8.2. Constraints In Slab Caster 32
8.3. Selection of Alternatives 33
8.4. RH Process 34
8.5. LF Process 35
8.6. Slab Casting Process 36
8.7. Benefits from Present Project 37
9. FINANCIAL ANALYSIS & APPRAISAL OF THE PROJECT 38
9.1. Capital Cost Estimate 38
9.2. Investment Evaluation Criteria 40
9.3. Cash Flow Estimates 44
9.4. Financial Appraisal 45
10. FINDINGS AND CONCLUSION 46
11. BIBLIOGRAPHY 48
7
Executive Summary SAIL, a Navratna PSU, is the largest integrated steel producer in India with
about 23% market share. With five integrated steel plants and special alloy
plants, SAIL manufactures and sells a broad range of steel products – both flat
and long. Bhilai Steel Plant (BSP), one of the five integrated steel plants was
set up in the year 1959 with an initial capacity of 1 Mtpa. It presently has a hot
metal capacity of about 4.08 Mntpa (production of 5.18 Mntpa in FY 2006).
BSP is one of the major producers of long steel products in India. The current
product mix of BSP comprises Plates, Rails, Heavy Structurals, beams,
channels, merchant products, bars, rods and light structurals, wire rods and
semis like blooms and billets. Presently, the long products constitute about
74% and flat products about 26% of the saleable steel produced at BSP.
At present, production of hot metal is through 100% BF (blast furnace)
process which is well established as more than 90% of world production is
through this process. BSP has got two Steel Melting Shops, SMS – I and SMS
– II. In SMS – I steel is produced through Twin Hearth Furnace – ingot
casting route. In SMS – II steel is produced through BOF (Basic Oxygen
Furnace), secondary refining and continuous casting route. Rated capacity of
SMS – I is 2.5 Mt of ingot steel. Rated capacity of SMS – II as per DPR is 1.5
Mt cast steel. The current plan is to increase SMS – II production
progressively to a level of 2.5 Mt per annum and subsequently to 2.8 Mtpa by
2012 as per SAIL‟s Corporate Plan.
Steel Melting Shop – II of BSP has got 3 BOFs, each of capacity 130t (max.)
in Converter Shop. In Continuous Casting Shop (CCS) there are 3 online
Argon Rinsing Units, one offline Vacuum Arc Degasser (VAD) unit, one
offline Ladle Furnace (LF), one offline RH Degasser (RHD) unit, 3 single
strand slab casters, one combination slab cum bloom (3 strand) caster and one
four strand bloom caster. Slabs are sent for rolling into plates in Plate Mill and
blooms are sent for rolling into rails in Rail Mill.
Continuous Casting Shop (CCS) of BSP was commissioned in 1984 based on
design of erstwhile USSR. No major modernization of the slab casters have
been done since start up. Technology, equipment and design have become
obsolete. Quality of slabs being produced is poor. Lot of rejections are taking
place due to casting defects especially in special quality plates and thick plates
of all quality. Besides, productivity of the caster is low. Existing casters need
revamping with state of art technology to remain in the market. Revamping of
caster shall lead to loss of production due to shutdown. Therefore, installation
of a new slab caster is a necessity.
8
There is big demand of line pipe steel (API grade) which requires vacuum
degassing. BSP is not producing this grade at present. Railways have also
demanded that all rail steel should be passed through RH Degasser only.
Keeping in view future projected demand of Railways, there shall be
constraint to process all Rail steel through existing RH Degasser. Ladle
Furnace is complimentary to RHD to take care of temperature drop during RH
treatment. Therefore, installation of second RH Degasser (RHD) and Ladle
Furnace (LF) is necessary along with installation of new caster.
Also as per the International Iron and Steel Institute (IISI) forecast, the Indian
Steel industry is likely to grow at over 7% per annum till 2015. The National
Steel Policy published by Ministry of Steel in 2005 also forecasts that the
demand for steel in India will grow from the current level of about 40 Mtpa to
110 Mtpa by 2020, indicating a growth rate of over 7%. Taking into
consideration the demand drivers from end user industries and the trend in
apparent consumption during FY 2002 to FY 2005, the projected growth rates
between FY 2007 to FY 2012 is assumed as 13% for plates and 8% for
railway materials. This market assessment again establishes the need for the
expansion & modernisation plan.
So my project would basically deal with installation of state of the art new
slab caster, RH Degasser, Ladle Furnace and associated facilities in Steel
Melting Shop – II. My scope of study would include the following:
The constraints in the existing facilities
Need for the current expansion & modernisation plan
Its strategic fit
Techno-economic feasibility
Cost estimates and appraisal of the project
Modes of financing
Risks associated with the project implementation
For this I studied and analysed the performance, benefits and loopholes of
existing facilities and compare it with the new plans. Assessment of the
current market demand and need of its old clientele helped in establishing its
need. Since the project was envisaged in 2005 all cost estimates have been
made with a conservative approach. For the project appraisal, techniques like
NPV, IRR, Payback and calculation of ROI and gross margin will be used.
And finally, the risks associated with the project were identified and
suggestions for mitigating risks were included. The concluding part contains
the observations on the entire project.
9
Steel Industry - Global Scenario
The International Iron and Steel Institute (IISI) has announced that world
crude steel output reached 1239.5 million metric tonnes for the year 2006.
This is an increase of 8.8% on 2005. The total represents the highest level of
crude steel output in history. 2006 is also the third consecutive year in which
crude steel output has been above 1 billion tons. 2006 production is 65.3%
above the total production for the world ten years ago. It is also 45.7% above
the total five years ago. However, over the past ten years the most remarkable
growth has been in China and the Asia region. In 1996, China produced 101.2
mmt of crude steel. By 2001 this had risen to 150.9 mmt, an increase of 49.1
%. In 2006, China produced 418.8 mmt of crude steel, an increase of 313.8%
in just ten years. China‟s share of world crude steel production has also
increased exponentially. In 1996, China became the largest steel producing
country in the world for the first time, accounting for just 13.5 % of
production. In 2006, this share had risen to 33.8%, just above one third of all
crude steel produced in te world.
Ten years ago the Asia region accounted for 38.4% of all crude steel
produced. By 2001, this percentage has risen to 41.6%. In 2006, the Asia
region accounted for 53.7% of world steel production.
The healthy world economic growth and demand in emerging market
countries, notably in Asia, where major infrastructure projects were under
way, acted as the key trigger to this significant production rise. But this trend
seems rather transitory. The Organization for Economic Cooperation and
Development in November opined, while steel prospects for 2007 remained
relatively sound, an increase in output capacity especially in Asia, could lead
to overproduction and fall in prices.
Rank
2006
Rank
2005
Country 2006 2005 %
Change
1 1 China 418.8 355.8 17.7
2 2 Japan 116.2 112.5 3.3
3 3 USA 98.5 94.9 3.8
4 4 Russia 70.6 66.1 6.8
5 5 South
Korea
48.4 47.8 1.3
6 6 Germany 47.2 44.5 6.1
7 7 India 44.0 40.9 7.6
8 8 Ukraine 40.8 38.6 5.7
9 10 Italy 31.6 29.4 7.5
10 9 Brazil 30.9 31.6 -2.2
10
Share of world crude steel production 1996, 2001 and 2006
Country 1996 (%) 2001 2006 Europe / CIS 37 36 29
North & South Amr 4 4 3
China 13 18 34
Other Asia 25 24 20
Others 21 18 14
11
Indian Steel Industry
"We still have a number of persons in our country in SAIL, TISCO and other
big and small steel plants who have the capabilities. They have the will to
excel and transform the country, given a long term vision."
"We should be ready to compete in outside markets…..If our steel industry
gears up in about 3 to 4 years, Indian steel can be both in Indian and foreign
markets. Our vision should be towards this."
- Indian 2020: A vision for the new millennium by APJ Adbul Kalam and YS
Rajan
An Introduction
The Indian Steel industry is almost 100 years old now. Till 1990, the Indian
steel industry operated under a regulated environment with insulated markets
and large scale capacities reserved for the public sector. Production and prices
were determined and regulated by the Government, while SAIL and Tata Steel
were the main producers, the latter being the only private player. In 1990, the
Indian steel Industry had a production capacity of 23 MT. 1992 saw the onset
of liberalization and the Indian economy was opened to the world. Indian steel
sector also witnessed the entry of several domestic private players and large
private investments flowed into the sector to add fresh capacities.
The last decade saw the Indian steel industry integrating with the global
economy and evolving considerably to adopt world-class production
technology to produce high quality steel. The total investment in the Indian
steel since 1990 is over Rs 19,000 crores mostly in plant equipments, which
have been installed after 1990. The steel industry also went through a
turbulent phase between 1997 and 2001 when there was a downturn in the
global steel industry. The progress of the industry in terms of capacity
additions, production, consumption, exports and profitability plateaued off
during this phase. But the industry weathered the storm only to recover in
2002 and is beginning to get back on its feet given the strong domestic
economic growth and revival of demand in global markets.
With a current capacity of 35 MT the Indian Steel Industry is today the 8th
largest producer of steel in the world. Today, India produces international
standard steel of almost all grades/varieties and has been a net exporter for the
past few years, underlining the growing acceptability of its products in the
global market.
12
Steel is a highly capital intensive industry and cyclical in nature. Its growth is
intertwined with the growth of the economy at large, and in particular the steel
consuming industries such as manufacturing, housing and infrastructure.
Steel, given its backward and forward linkages, has a large multiplier effect.
Economists quantify the economic impact of any sector through measures
such as the output multiplier effect, forward and backward effects etc. Based
on the Indian input-output model, the Iron, Steel and Ferro Alloys sector
(sector code 72 of CSO Table) reveals high output multiplier of 2.64 and
ranks 4 out of 115 sectors into which the economy is divided. The output
multiplier effect is defined as the total increase in output generation (in case of
sector 72, total increase of 2.64 units including unitary increase of the sector‟s
own output) for one unit increases of final demand in the particular sector.
The Forward Linkage refers to the inter relationship between the particular
sector and all other sectors which demand the output of the former as their
inputs. In the CSO table of 60 sectors (where all iron and steel sub sectors
have been merged to one sector), the Forward Linkage of the Iron and Steel
sector at 4.79 is quite significant (ranks 4 out of 60 sectors into which the
economy is divided). The significant output multiplier effect and the forward
linkage effects are the compelling reasons propelling various economies to set
up domestic plants to satisfy the local demand. Economists have estimated
that for every additional one lakh rupees output (2002-03 prices) in the Iron,
Steel and Ferro alloys sector, an additional 1.3 man years of employment are
created.
With capital investments of over Rs 100, 000 crores, the Indian steel industry
currently provides direct/indirect employment to over 2 million people. As
India moves ahead in the new millennium, the steel industry will play a
critical role in transforming India into an economic superpower.
Industry Structure
The Indian steel industry can be divided into two distinct producer groups:
• Major producers : Also known as Integrated Steel Producers (ISPs), this
group includes large steel producers with high levels of backward
integration and capacities of over 1 MT. Steel Authority of India Limited
(SAIL), Tata Steel, Rashtriya Ispat Nigam Limited (RINL), Jindal
Vijayanagar Steel Limited (JVSL), Essar Steel and Ispat Industries form
this group.
SAIL, TISCO and RINL produce steel using the blast furnace/basic
13
oxygen furnace (BF/BOF) route that uses iron ore, coal/coke as the basic
input mix for producing finished steel.
Other major producers such as Essar Steel, Ispat Industries and JVSL use
routes other than BF/BOF for producing steel. While Essar Steel and Ispat
Industries employ Electric Arc Furnace (EAF) route that uses sponge iron,
melting scrap or a mix of both as input, JVSL uses COREX, a
revolutionary technology for making steel using basically iron-ore and
coal.
• Other producers: This group consists of smaller stand-alone steel plants
that include producers and processors of steel.
• Processors/Re-rollers: Units producing small quantities of steel
(flat/long products) from materials procured from the market or
through their own backward integration system.
• Stand alone units making pig iron and sponge iron.
• Small producers using scrap-sponge iron-pig iron combination
produce steel ingots (for long products) using Electric Arc Furnace
(EAF) or Induction Arc Furnace (IAF) route.
The Major producers are strategic in nature and account for most of the mild
steel production in the country. The group produces most of the flat steel
products in the country including Hot Rolled, Cold Rolled and Galvanised
steel. The majors also produce a small proportion of Long products and other
special steel being produced in the country.
Other producers account for a majority of long products being produced in the
country and some of the value added flat steel products like cold rolled steel
and galvanized steel.
Types of Steel
All steel products are made from semi-finished steel that comes in the form of
slabs, billets and blooms. Though today there are over 3500 varieties of
regular and special steel available, steel products can be broadly classified into
two basic types according to their shape
Flat products
14
Derived from slabs this category includes plates and Hot Rolled Steel such as
Coils/Sheets. While plates are used for applications such as shipbuilding etc.,
HR Steel is the most widely used variety of steel and other downstream flat
products such as Cold Rolled Steel and Galvanised steel are made from it.
HR Steel has a variety of applications in the manufacturing sector. It is
primarily used for making pipes and has many direct industrial and
manufacturing applications, including the construction of tanks, railway cars,
bicycle frames, ships, engineering and military equipment and automobile and
truck wheels, frames and body parts. Cold Rolled Steel is used primarily for
precision tubes, containers, bicycles, furniture and for use by the automobile
industry to produce car body panels. Galvanised Steel is used for making
roofs in the housing and construction sector.
(Vide Flow chart I and II)
Long products
These products derive their name from their shape. Made using billets and
blooms they include rods, bars, pipes, ropes and wires, which are used largely
by the housing/construction sector. There are also other products like rail
tracks in the category. (Vide Flow chart I and II)
Semi finished steel is also used to produce other varieties of specialized steel
such as Alloy Steel.
Flow chart I: Blast furnace route for producing steel
15
Flow chart II: Electric Arc Furnace route of producing steel
Steel Markets – Production and Consumption
For the year 2003-04 the production of finished steel in the country was up
7.4% to 36.15 MT while the consumption was 30.4 MT. The production had
grown 6.7% during 2002-03.
During 2003-04 production of HR Steel by ISA member companies increased
by 9% to 13.14 million tones from 12.07 MT last year. Meanwhile domestic
demand for HR Steel increased by 13% to 10.29 MT this year compared to
9.34 MT last year. Exports increased by a mere 2% to 2.89 MT from 2.82 MT
in 2003-04.
• It is important to note that in 2003-04 domestic demand fell short of
production by 3 MT underlining that enough quantities of HR Steel
were available to the domestic user groups. Thus ISA member
companies have had to export to manage the surplus production.
• Companies did not export at the cost of the domestic industry.
• Exports as percentage of total production has gone down from 14% in
2002-03 to 13% in 2003-04.
16
• Minimum levels of exports are essential to maintain a presence in the
international markets.
Other notable trends have been that product mix of major steel producers is
gradually shifting to value added products as producers look to diversify their
product mix to avoid any impact of cyclicity.
During the last few years Indian steel exports have been led by flat products –
HR Coil, CR Coil and Galavanised Steel while long products have had
negligible exports. This is explained by the fact that apparent consumption of
flat steel in India is way lower than the production, making India a net
exporter of the surplus. Long products meanwhile have enjoyed higher
apparent consumption thanks to the continued boom in the domestic housing
sector and governments thrust on infrastructure activities.
Prices
The last few years have witnessed the growing acceptability of Indian steel in
international markets and opening up of the economy has seen a progressive
decrease in import tariffs on steel. These linkages with the global economy
mean that today domestic steel prices are determined on the basis of two main
factors
• Input costs
• International steel prices.
The current trend in domestic prices of HR Steel and inputs such as coking
coal, iron ore and scrap, is a result of a worldwide increase in prices. This
trend is being driven by the acceleration of economic growth in China and
revival of key sectors across US, Europe and Asia. This has led to a sudden
jump in demand for steel across the globe and consequently for raw material
inputs as well. This has led to a shortage of key inputs resulting in increased
prices. A look at price trends of key inputs (Fig. 1) shows that average input
cost has climbed up by as much as 300%. With most major producers in the
country depending on import of inputs for production of HR Steel, current
prices are simply an end result of rising input costs.
17
Increase in input costs
Input
(US$/T)
Price in
Dec 2002
Price in
Sept 2003
Price in
Mar 2004
Difference
over 2002
%
increase
over 2002
Coke 120.00 200.00 500 380 317%
Melting
Scrap 110.00 220.00 300 190 173%
Pig Iron 110.00 220.00 350 240 218%
Iron Ore 28.00 48.50 110 82 293%
Freight 9.00 28.00 40 31 344%
Source: Metal Bulletin and Internal
Sources Fig.1
In spite of the phenomenal increase in input costs domestic prices of HR steel
are comparable/lower than international prices.
Prices of steel as prevailing in the domestic markets of important steel
producing countries.
US $/pmt.
Feb 04 Jan-March
03
April-June
03
July-Sept 03
USA 515.00 350.00 332.00 345.00
China 550.00 350.00 340.00 385.00
India-US
$/pmt
507.00 348.00 358.00 370.00
Source-CRU-London Fig.2
The price comparison given above clearly highlights:
• Steel prices in India are in line with those prevailing in the domestic
markets of the major steel producing countries both in the developed
and developing markets.
• Indian Steel consumers are not at any disadvantage to their
counterparts in the developed and developing markets.
18
With respect to price of HR Steel, a look at domestic prices during the last
five years (Fig. 3) clearly points that current prices are realistic and
comparable to prices prevailing in 1997-98.
Source :Internal Fig.3
Contrary to popular belief steel does not account for a significant proportion
of costs of end products (Fig.4)
Share of steel in total cost of production of user industries
Product Input steel (kgs) Value of steel as
% of cost of a
product
Value of steel as
% Market price
of a product (Rs)
Small Car 850 16 7
SUV 1075 15 4
Scooter 45 7 4
Refrigerator 15 7 5
Washing Mach. 9 3 3
Almirah 50 N.A. 16
Source : Tata Steel Fig.4
A look at profits of a few user companies (for the period Apr – Dec 2003)
suggests that while profitability of user group has ranged between 12% to
19
233%, it is the steel industry, which is yet to emerge from the days of
recession.
Current Scenario
1. Indian economy growing @ 8 to 9%, is one of the fastest growing
economies in the world.
2. Industrial production showing encouraging trends. Index of industrial
production for Capital goods is growing @ 8.4% CAGR and growth in
index for consumer durables was @10.5% CAGR during 2005-06.
3. The 10th plan investment in infrastructure has been envisaged at around
Rs.880, 550 crores.
4. The major sector-wise anticipated investment is likely to be Rs.292000
crores in Power, Rs.145000 crores in Roads & Bridges, irrigation Rs.
111000 crores.
5. During 11th plan (2007-08 to 2011-12), the projected investment
towards infrastructure is likely to be Rs. 2027000 crores, an increase of
180% over 10th plan.
6. Per capita steel consumption at 35 kg low as compared to world average
of 150 kg. and 300kg for China.
7. National Steel Policy, as formulated by Indian Ministry of Steel
envisages the following –
I. Crude steel production of 110 million tones by 2019-20 at CAGR
of 7.1% from 2004-05.
II. The demand of steel by 2020 is likely to be 90 million tones at
CAGR of 6.9% from 04-05.
III. Steel exports by 2020 is likely to grow at CAGR of 13.3% from
04-05 to 26 million tones.
IV. Steel imports to the country by 2020 shall grow at CAGR of 7.1%
from 04-05 to 6 million tones.
20
8. Lot of steel projects both brown-field and Greenfield likely to come up
and are in various stage of execution.
9. As per the news paper reports (Eco. Times dt.14-11-07), Steel Minister
has projected India's steel production to be around 124 million tones by
2012 and a capacity of around 275 million tones by 2019-20.
10. During the year 06-07, India produced around 49 million tones of
finished steel which was higher by 11 % over 05-06.
11. Imports at 4.1 million tones during 06-07 was higher by 6.5%. Exports
at 4.7 million tones grew by 6.1% during 06-07.
12. During 05-06 Iron ore exports at 84 million tones was almost at the
previous year's level of 87 million tones.
13. During April - Sept.'07 following has been the performance-
I. Crude steel production at 25.7 million tones, exhibited a growth of
5 % over corresponding period last year.
II. Exports at 2.6 million tones shows an increase by around 8% over
the same period of last year.
III. Imports were around 3.2 million tones which was an increase by
63% over April-Sept'06.
14. Due to infrastructure focus, production of long products is gradually
increasing and ratio of flat to long products is narrowing.
15. During Apr-Sept'07 non flat steel produced at 12.4 million tones
showed an increase of around 9% over April-Sept'06.
16. In case of flat products production during April-Sept'07 at 12.2 million
tones was almost at same level of last year.
17. Apparent Consumption of steel during April-Sept'07 was 22 million
tones which was an increase by 11 % over April-Sept'06. While long
products (excl. semis) at 12.3 million tones registered a growth of 9%,
the flat products consumption at 12.5 million tones indicated an
increase of 12%.
With due focus on infrastructure development and strong economic indicators,
the demand for steel in India shall continue to remain robust.
21
The Government envisions India becoming a developed nation by 2020 with a
per capita GDP of $1540. For a nation that is economically strong, free of the
problems of underdevelopment and plays a meaningful role in the world as
befits a nation of over one billion people, the groundwork would have to begin
right now. The Indian Steel Industry will be required and is willing to play a
critical role in achieving this target.
With abundant iron ore resources and well-established base for steel
production in the country, steel is poised for growth in the coming decades.
Production has increased from 17 MT in 1990 to 36 MT in 2003 and 66 MT is
targeted for 2011. While steel will continue to have a stronghold in traditional
sectors such as construction, housing, ground transportation, special steels will
be increasingly used in hi-tech engineering industries such as power
generation, petrochemicals, fertilisers etc. Steel will continue to be the most
popular, versatile and dominant material for wide ranging applications. While
India may not become a leader in world steel market, it is poised to become a
powerful force.
22
Steel Authority of India Limited (SAIL)
There’s a little bit of SAIL in everybody’s life….
“STEEL is the basic framework which has built nations, and it is on this
strength that nation stand apart. This manmade metal has an extraordinary
quality of contributing to every aspect of life. While it keeps the wheels of
industry turning. It also lends ever-lasting quality to all kinds of structure and
infrastructure.”
‘SARDAR VALLABBHAI PATEL’
Steel Authority of India Limited (SAIL) is the leading steel-making company
in India. It is a fully integrated iron and steel maker, producing both basic and
special steels for domestic construction, engineering, power, railway,
automotive and defence industries and for sale in export markets.
Ranked amongst the top ten public
sector companies in India in terms of
turnover, SAIL manufactures and sells a
broad range of steel products, including
hot and cold rolled sheets and coils,
galvanised sheets, electrical sheets,
structurals, railway products, plates, bars
and rods, stainless steel and other alloy
steels. SAIL produces iron and steel at
five integrated plants and three special
steel plants, located principally in the eastern and central regions of India and
situated close to domestic sources of raw materials, including the Company's
iron ore, limestone and dolomite mines. The company has the distinction of
being India‟s largest producer of iron ore and of having the country‟s second
largest mines network. This gives SAIL a competitive edge in terms of captive
availability of iron ore, limestone, and dolomite which are inputs for steel
making.
SAIL's wide range of long and flat steel products are much in demand in the
domestic as well as the international market. This vital responsibility is carried
out by SAIL's own Central Marketing Organisation (CMO) and the
International Trade Division. CMO encompasses a wide network of 34 branch
offices and 54 stockyards located in major cities and towns throughout India.
With technical and managerial expertise and know-how in steel making
23
gained over four decades, SAIL's Consultancy Division (SAILCON) at New
Delhi offers services and consultancy to clients world-wide.
SAIL has a well-equipped Research and Development Centre for Iron and
Steel (RDCIS) at Ranchi which helps to produce quality steel and develop
new technologies for the steel industry. Besides, SAIL has its own in-house
Centre for Engineering and Technology (CET), Management Training
Institute (MTI) and Safety Organisation at Ranchi. The captive mines are
under the control of the Raw Materials Division in Kolkata. The Environment
Management Division and Growth Division of SAIL operate from their
headquarters in Kolkata. Almost all the plants and major units are ISO
Certified.
The Government of India owns about 86% of SAIL's equity and retains voting
control of the Company. However, SAIL, by virtue of its „Navratna‟ status,
enjoys significant operational and financial autonomy. SAIL, during FY 2006,
achieved its highest ever production and sales of 12.1 million tonne (Mnt) and
11.31 Mnt of saleable steel respectively, with turnover of Rs. 32280 crore and
net profit of Rs. 4013 crore. SAIL‟s current share of domestic steel market is
23%.
Major Units
Integrated Steel Plants
Bhilai Steel Plant (BSP) in Chhattisgarh
Durgapur Steel Plant (DSP) in West Bengal
Rourkela Steel Plant (RSP) in Orissa
Bokaro Steel Plant (BSL) in Jharkhand
IISCO Steel Plant (ISP) in West Bengal
Special Steel Plants
Alloy Steels Plants (ASP) in West Bengal
Salem Steel Plant (SSP) in Tamil Nadu
Visvesvaraya Iron and Steel Plant (VISL) in Karnataka
Subsidiary
Maharashtra Elektrosmelt Limited (MEL) in Maharashtra
Joint Ventures
SAIL has promoted joint ventures in different areas ranging from power
plants to e-commerce.
24
NTPC SAIL Power Company Pvt. Ltd: A 50:50 joint venture
between Steel Authority of India Ltd. (SAIL) and National Thermal
Power Corporation Ltd. (NTPC Ltd.), it manages the captive power
plants at Rourkela, Durgapur and Bhilai with a combined capacity of
314 megawatts (MW)
Bokaro Power Supply Company Pvt. Limited: This 50:50 joint
venture between SAIL and the Damodar Valley Corporation formed in
January 2002 is managing the 302-MW power generation and 1880
tonnes per hour steam generation facilities at Bokaro Steel Plant.
Mjunction Services Limited: A joint venture between SAIL and Tata
Steel on 50:50 basis, this company promotes e-commerce activities in
steel and related areas.
SAIL-Bansal Service Center Ltd.: SAIL has formed a joint venture
with BMW industries Ltd. on 40:60 basis to promote a service centre at
Bokaro with the objective of adding value to steel.
Bhilai JP Cement Ltd: SAIL has also incorporated a joint venture
company with M/s Jaiprakash Associates Ltd to set up a 2.2 MT cement
plant at Bhilai.
SAIL has signed an MOU with Manganese Ore India Ltd (MOIL) to set
up a joint venture company to produce ferro-manganese and silico-
manganese at Bhilai.
SAIL today is one of the largest industrial entities in India. Its strength has
been the diversified range of quality steel products catering to the domestic, as
well as the export markets and a large pool of technical and professional
expertise.
SAIL’s Growth Plan 2010
Much has happened ever since SAIL‟s Corporate Plan was announced in
2004. Investment plans for the three speciality steel plants have been firmed
up. Company has grown in size with the amalgamation of IISCO (now
renamed as IISCO Steel Plant). Production targets have been revised from 19
million tonnes (MT) of steel to about 24 MT. Estimated investment has
increased from Rs 25,000 crore to around Rs 40,000 crore. And the time
period has been squeezed by two years, bringing the targeted year of
completion of major projects from 2012 to 2010.
25
Saleable Steel Capacities (MT)
PLANT 2010
Bhilai Steel Plant 6.21
Durgapur Steel Plant 2.85
Rourkela Steel Plant 2.90
Bokaro Steel Plant 6.50
IISCO Steel Plant 2.37
Alloy Steels plant 0.43
Salem Steel Plant 0.36
Visvesvaraya Iron & Steel Plant
0.22
Dynamic Adjustments
SAIL‟s Growth Plan is essentially a directional document. With the changing
market scenario and technological advancements the company shall continue
to fine-tune our growth plans keeping in mind the steel plants‟ operational
requirements.
As such, the company‟s growth plan is in tune with the boom being
experienced by the global steel industry and the high rates of growth being
established by the Indian economy and the major steel-consuming sectors.
The endeavour is not only in tandem with India‟s National Steel Policy of
achieving a production level of 110 MT of crude steel by the year 2020, but
also amply reflects the company‟s Vision of achieving market leadership. The
target of 110 mt of steel has been worked out on the basis of a compounded
annual growth rate of 7.3% per annum.
Enhancing Competitiveness
The objective, however, remains the same. Beside capacity enhancement, the
growth plan addresses the need of the SAIL plants and other units towards
eliminating technological gaps in the production process, improving
productivity levels for all stages right from raw materials to rolling mills,
bringing in technologies for energy savings, yield improvement, pollution
control and automation. The long term plan is to build sustainable
competencies.
26
MECON, a leading consultant in the field of metallurgical industry, has been
assigned the task of preparing composite project feasibility reports (CPFRs)
for Bhilai, Durgapur, Rourkela and Bokaro Steel Plants of SAIL, indicating
various schemes required to be implemented along with all requisite auxiliary
services, essential utilities logistics and infrastructure support necessary to
achieve the enhanced production.
The key technological up-gradations undertaken during the growth period is
expected to achieve the following:
1. 100% production of steel through BOF route
2. 100% processing of steel through continuous cast route
3. gradual implementation of alternative fuel injection methods like coal
dust/tar injection in all the blast furnaces
4. state-of-the-art process control computerisation / automation
5. state-of-the-art online testing and quality control facilities
6. gradual implementation of Enterprise Resource Planning (ERP) across its
plants.
The focus is on producing wider product-mix with emphasis on value added
products and improved product quality. Some of the new products that are in
the pipeline are SAW line pipes for the fast-growing oil and gas sector, CRGO
steels - a product in severe short supply globally, wide flange beams for the
construction sector and colour coated sheets. The IT initiatives like ERP are
also being integrated with the existing business systems.
SAIL‟s growth plan 2011-12 also entails modernisation of three of its special
steel plants – Alloy Steels Plant (ASP) at Durgapur, Visvesvaraya Iron &
Steel Plant (VISL) at Bhadravati and Salem Steel Plant (SSP) at Salem. This
will ensure increase in the production of saleable steel from SAIL‟s special
steel plants from a level of 0.379 MT in 2004-05 to 0.993 MT by 2010.
Ensuring Raw Materials
The iron ore production has been estimated to go up to the level of 35 MT per
annum. The plan includes developing two major mechanised iron ore mines –
at Rowghat in the western region and Chiria in the east. Both the mines will
be developed with latest technology to ensure assured supply of required
quantity of quality iron ore to SAIL plants. Under its corporate plan SAIL
aims at setting up of pellet plants (one at Bhilai and another near
27
Manoharpur), which would enable utilisation of huge iron ore fines generated
during the mining operations, apart from reducing cost of hot metal
production.
SAIL has adopted the following four pronged strategy to meet the enhanced
requirement of iron ore:
1. Developing new blocks/mines
2. Maximising production from existing mines
3. Improving the quality of iron ore by suitable beneficiation, and
4. Achieving operating efficiencies by economic scale of operations
Renewal of existing iron ore mining leases and grant of some of the new
leases are essential for making investment for development of new mines and
expansion of some of the mines. This is critical for fulfillment of SAIL‟s
Corporate Plan.
The total coking coal requirement is likely to increase from the current level
of 15 MT to around 28 MT by 2010. Plans are on the anvil to enter into
strategic investments/ tie-ups for coking coal blocks in India and abroad to
ensure assured supply of Coking coal. SAIL‟s corporate plan envisages
investment in collieries at Tasra, Ramnagore, Chasnalla and Jitpur.
Prevailing Scenario
True, SAIL is looking into future and the journey has begun. As of now,
projects worth around Rs 28,000 crore are in various stages of
implementation. This includes ongoing 28 numbers of projects worth more
than Rs 2,800 crore spread over six production units across the country. The
tendering for rest of the approved projects worth around Rs 25,000 crore is
presently under progress. And, more importantly, three new production
facilities have recently been commissioned at a total cost of Rs 187 crore at
Bhilai Steel Plant (BSP).
In a significant development, the company now obtains consolidated approval
for the major projects instead of piece meal approvals. For instance, the SAIL
board has in the last one year granted „in-principle‟ approval for the entire
package of Rs 1,553 crore of projects for Sales Steel Plant (SSP), Rs 9,592
crore for IISCO Steel Plant (ISP) and Rs 9,265 crore for Bokaro Steel Plant
(BSL).
Some of the important ongoing projects include Installation of Slab Caster at
Bhilai Steel Plant, Installation of Bloom Caster at Durgapur Steel Plant,
Installation of Pipe Coating Plant at Rourkela Steel Plant, Rebuilding of Coke
28
Oven Battery No. 5 and Upgradation of Automation System of Tandem Mill
in CRM Complex at Bokaro Steel Plant and Installation of Argon Oxygen
Decarburisation (AOD) and High Powered Electric Arc Furnace (EAF) at
Alloy Steels Plant.
Unique Features
As per the Growth Plan, BSL is likely to become the first steel plant in SAIL
to have a state-of-the-art thin slab caster. With this, Bokaro plant will acquire
capability to process 100% of steel through continuous casting process. ISP
for the first time will boast of having sinter making facilities with the
installation of two new sinter plants and continuous casting facilities with the
installation of continuous billet and beam blank/ bloom casters. The steel plant
at Burnpur will also be added with a new wire & rod mill of 1.2 MT capacity.
With the installation of a new Bar & Rod Mill (1.4 million tonnes) and a new
Structural Mill (0.4 million tonnes), the production of semis will come down
from current level of 56% to 7% at Durgapur Steel Plant. Similarly, Salem
Steel Plant for the first time will have steel making facilities along with
continuous slab caster. Presently, SSP is entirely dependent on external
sources for supply of stainless steel slabs. Effective Implementation
The mere statistics may not tell the real story. The logistics, the tonnages, the
number of executing agencies, the procedures, the contract labourers, the
finance, so on and so forth – the sheer scale of operations and the range of
activities are staggering. Needless to mention, the key to success lies in
meticulous planning, continuous monitoring and effective finishing. The task
becomes all the more daunting due to the additional challenge of simultaneous
management of ongoing operations in steel plants.
On its part, the company firms up concrete plans to pull out all the stops.
Integrated Project Management, Delegation of Power to Project Managers,
Prequalification of Conference with Prospective Bidders, MoUs with Vendors
for Regular Jobs and Performance Evaluation of Contracting Agencies are
some of the new initiatives in this regard. SAIL has also simplified its
purchase and contract procedures that will surely go a long way in facilitating
timely completion of the projects on such a large scale.
Human Resource
Thrust on human resource development continues with a renewed focus on
29
inculcating a greater value orientation across the company. A series of
initiatives are being taken to improve the competence level of the employees
in tune with changing technologies, customer demands and market dynamics.
Accordingly, training modules have been redesigned with a clear focus on
competence mapping, skill gap analysis, multi-skilling and multi-tasking apart
from imparting training on new technologies of steel making. Efforts are also
on to put a system in place to institutionalise the sharing of knowledge among
the employees.
Ensuring competitiveness
Achieving cost competitiveness remains a prime target of SAIL‟s future plans.
Today in SAIL, the focus of the sustained cost control exercise is on
shortening cycle time, reducing specific usage of inputs, eliminating wastages
and improving yields. The work has begun in right earnest. The challenge
before SAIL is to ensure that the projects are implemented without time and
cost overruns.
Today, the accent in SAIL is to continuously adapt to the competitive business
environment and excel as a business organisation, both within and outside
India.
30
Bhilai Steel Plant
Bhilai Steel Plant – a symbol of Indo-Soviet
techno-economic collaboration, is one of the
first three integrated steel plants set up by
Government of India to build up a sound base
for the industrial growth of the country. The
agreement for setting up the plant with a
capacity of 1 Mt of Ingot steel was signed
between the Government of erstwhile USSR
and India on 2nd
February 1955, and only after
a short period of 4 years, India entered the
main stream of the steel producers with the
commissioning of its first Blast Furnace on 4th
February, 1959 by the then
President of India, Dr Rajendra Prasad. Commissioning of all the units of 1
MT stage was completed in 1961 and within a year of integrated operation of
the plant the plant achieved its rated capacity production.
Thereafter, the plant was expanded to 2.5 MT capacity per year, and then to 4
MT of crude steel per year, with Soviet assistance.
BSP is the sole manufacturer of rails and producer of the widest and heaviest
plates in India. Bhilai specializes in the high strength UTS 90 rails, high
tensile and boiler quality plates, TMT bars, and electrode quality wire rods. It
is a major exporter of steel products with over 70% of total exports from the
Steel Authority of India Limited being from Bhilai.
The distinction of being the first integrated steel plant with all major
production units and marketable products covered under ISO 9002 Quality
Certification belongs to BSP. This includes manufacture of blast furnace coke
and coal chemicals, production of hot metal and pig iron, steel making
through twin hearth and basic oxygen processes, manufacture of steel slabs
and blooms by continuous casting, and production of hot rolled steel blooms,
billets and rails, structurals, plates, steel sections and wire rods. The plant‟s
Quality Assurance System has subsequently been awarded ISO 9001:2000.
A leader in terms of profitability, productivity and energy conservation, BSP
has maintained growth despite recent difficult market conditions. Seven times
winner of the Prime-Minister‟s Trophy for the best integrated steel plant in the
country, it is the only steel plant to have achieved this distinction.
31
Bhilai has its own captive mines spread over 10929.80 acres. It gets iron ore
from Rajhara group of mines, 85 kms south-west of Bhilai. Limestone
requirements are met by Nandini mines, 20 kms north of Bhilai and dolomite
comes from Hirri in Bilaspur district, 135 kms east of the plant. To meet the
future requirement of iron ore, another mining site Rowghat, situated about
100 km south of Rajhara, is being developed as the ore reserves at Rajhara are
depleting. With the expansion of its capacity to 4MT, the plant now consists
of ten coke oven batteries. Six of them are 4.4 metres tall. The 7 metres tall
fully automated batteries No. 9 & 10 are among the most modern in India. Of
Bhilai‟s seven blast furnaces, three are of 1033 cu. metres capacity each, three
of 1719 cu. metres and one is 2000 cu. metres capacity. Most of them have
been modernised incorporating state-of-the-art technology.
Steel is made through twin hearth furnaces in Steel Melting Shop I as well as
through LD Converter-Continuous Casting route in SMS II. Steel grades
conforming to various national and international specifications are produced
in both the melting shops. Production of cleaner steel is ensured by flame
enrichment and oxygen blowing in SMS I while secondary refining in
Vacuum Arc Degassing ensures homogeneous steel chemistry in SMS II. Also
in SMS II is a 130 T capacity RH (Ruhrstahi Heraus) Degassing Unit,
installed mainly to remove hydrogen from rail steel and Ladle Furnace to meet
present and future requirements of quality steel. Bhilai is capable of providing
the cleanest and finest grades of steel.
The rolling mill complex consists of the Blooming and Billet Mill, Rail &
Structural Mill, Merchant Mill, Wire Rod Mill and also a most modern Plate
Mill. While input to the BBM and subsequently to Merchant Mill and Wire
Rod Mill comes from Twin Hearth Furnaces,
the Rail & Structural Mill and Plate Mill roll
long and flat products respectively from
continuously cast blooms and slabs only. The
total length of rails rolled at Bhilai so far would
circumvent the globe more than 4.5 times.
During 2005-06, BSP produced 4.29 Mnt of saleable steel and earned Gross
Profit (GP) of Rs. 2535 crore on total income of Rs. 9683 crore. BSP‟s
income constituted about 35% of the total income of SAIL. BSP presently has
a hot metal capacity of about 4.08 Mntpa (production of 5.18 Mntpa in FY
2006). It proposes to increase the same to 7.50 Mntpa by implementing
sustenance, modernisation and expansion programme.
32
MAJOR PRODUCTS OF BHILAI STEEL PLANT
Hot Rolled Coils, Sheets and Skelp
Hot rolled coils, sheets and skelp (narrow coil), are the largest product
category of the company in terms of both sales
volume and revenue. Hot rolled coils are
primarily used for making pipes and have many
direct industrial and manufacturing applications,
including the construction of tanks, railway
cars, bicycle frames, ships, engineering and military equipment and
automobile and truck wheels, frames and body parts. Hot rolled coils are also
used as feedstock for cold rolling mills where they undergo further processing.
Hot rolled coils are also delivered to the company's own cold rolling mills and
silicon sheet mill and pipe plant in a wide range of widths and thicknesses as
the feedstock for higher value-added steel products. The company is the
largest producer of hot rolled coils, sheets and skelp in India.
Semi-Finished Products
The company produces semi-finished products, including blooms, billets and
slabs, which are converted into finished products in the company's processing
plant and, to a lesser extent, sold to rerollers for conversion to finished
products
Plates
Steel plates are used mainly for the manufacture of bridges, steel structures,
ships, large diameter pipes, storage tanks, boilers, railway wagons and
pressure vessels. The company also produces weatherproof steel plates for the
construction of railcars. The company is currently the largest producer of steel
33
plates in India with a domestic market share of more than 80 per cent for these
products. The company is the only producer of wide and heavy plate products
in India.
Cold Rolled Products
Cold rolling of hot rolled products produces a superior surface finish,
improves the physical properties of the steel, such as tensile strength, and
reduces its thickness to precise gauges. As a result, cold rolled products
generally command higher prices than hot rolled products. The products of the
cold rolling mill include cold rolled sheets and coils, which are used primarily
for precision tubes, containers, bicycles, furniture and for use by the
automobile industry to produce car body panels. Cold rolled products are also
used for further processing, including for colour coating, galvanising and
tinning.
Railway Products
Railway products, including rails, wheels and axles, sleeper and fish plates
(which are used to connect and strengthen rails), are produced through a
process of hot rolling blooms in the finishing mills and forging ingots and
34
blooms in the forging press or hammer. Railway products are used primarily
to upgrade and expand the existing railway network in India
Structurals
Structural steel products are produced through a process of hot rolling in the
section or structural mills. They are long steel products with cross sections of
various shapes. I-beams, channels and angle steel are used in mining, the
construction of tunnels, factory structures, transmission towers, bridges, ships
railways and other infrastructure projects
Bars and Rods
The company produces steel bars and rods through a process of hot rolling
billets in the finishing mills. Reinforcement steel and wire rods are primarily
used by the construction industry. The company is one of the largest
producers of reinforcement bars in India which are primarily sold to the
construction industry.
35
Speciality Products
Speciality products include electrical sheets, tin plates and pipes. Electrical
sheets are cold rolled products of silicon steel for electrical machinery. Tin
plates are cold rolled steel electrolytically coated with tin for food packaging.
Pipes are longitudinally or spirally welded from hot rolled coils for conveying
such things as water, oil and gas
Alloy and Stainless Products
In addition to the steel products indicated above, SAIL produces a wide range
of alloy steel products at ASP. Elements including chromium, nickel,
vanadium and molybdenum are used in the alloy mixture to impart special
properties to steel. These alloy steels are primarily used for sophisticated
applications, including in the automobile, railway and defence industries.
Product Mix of BSP
BSP is one of the major producers of long steel products in India. The current
product mix of BSP comprises Plates, Rails, Heavy Structurals, beams,
channels, merchant products, bars, rods and light structurals, wire rods and
semis, like blooms and billets. Presently, the long products constitute about
74% and flat products about 26% of the saleable steel produced at BSP.
Rail & Structural Mill (Capacity - 7,50,000 T )
Products
Rails - R52 Kg/m & R60 Kg/m ; UTS 880 N/mm2 rails as per IRST-
12/96 specifications , Euronorms and international standards.
Thick web asymmetric rail Zu 1-60
36
Beams - 600,500,450,400,350,300 & 250.
Channels - 400,300 & 250.
Angles - 200 & 150.
Crossing Sleeper.
Crane Rails - KP80, 100,120 & 140.
Bhilai is the sole supplier of the country's longest rail tracks of 260
metres.
Bhilai Rails
Largest producer and leading rail maker of the world.
Four and a half decades of experience in rail making.
Produced over 15 million tonnes of rails; 2.7 lakh km in length.
Indian Railways- World‟s second largest rail company moves
exclusively on Bhilai rails.
Bhilai rails are subjected to world‟s highest traffic density and axle
loads.
Rails exported to 10 countries with exports to South Korea, New
Zealand, Argentina, Turkey, Iran, Egypt, Ghana, Bangladesh and
Malaysia.
Technological Superiority
Steel from LD Convertor – Ladle furnace - RH Degasser – Concast
route; achieving world best level of degassing/refining to less than 1.5
ppm of hydrogen in liquid steel in 100% of heats.
Capability to produce as rolled lengths of 80 meter and welded panels
upto 260 meters
High degree of Straightness due to world‟s most advanced and Laser
straightness measurement based end straightening machine.
World class tested rails passing through state of art online NDT
equipment; Laser straightness measurement, Ultrasonic and eddy
current testing machines
Computer controlled automatic rail handling system and automatic yard
mapping for rail storage.
Computerised Rail Tracking system for collection and storage of all
process and testing related data of each rail.
Merchant Mill (Capacity - 5,00,000 Tonnes)
37
Products
Plain Rounds : dia 28, 32, 36,40, 50,53, 56, 63 & 67
TMT Bars : 25,28, 32, 36, 40 & 45
Lt. Structurals :Channel 100 x 50, 75 x 40
Angles : 50 x 50 x 5 upwards to 90 x 90 x 10
Wire Rod Mill (Capacity - 4,20,000 T)
Products
Wire Rods (Plain, Electrode Quality & TMT) in 5.5, 6, 7, 8 & 10 mm
plain and ribbed, and 12 mm plain in coil form
8, 10, and 12 mm TMT
Plate Mill (Capacity – 9,50,000 T)
(Plate thickness: 8-120mm, Width: 1500-3270mm, Length: 5-12.5 M)
The modern Plate Mill rolls out heavy and medium plates, as well as those for
pipe manufacturers. Plates of wide variety, in any required size, and strength,
chemical and physical properties, can be produced here. It has capacity to
produce high pressure, boiler quality and high tensile steels. Shipbuilding
plates, conforming to Lloyds specifications, and pressure vessel boiler plates,
conforming to various ASTM, ASME standards, have withstood the
challenges of nature and time. Some of the unique features of the mill are on-
line finishing facilities and off-line normalising facilities. Bhilai has the
widest plate mill in the country, and it uses continuously cast slabs as input.
Liquid steel produced under controlled conditions in the LD Converters is
rinsed with argon gas to homogenise the composition as well as to remove
non-metallic inclusions before continuous casting so as to ensure the
production of high quality feedstock for the Plate Mill. As per customers'
requirement or specifications, plates are normalised in a roller hearth
normalising furnace.
New Products
38
To meet the customers‟ requirements, increase the market share and widen the
product range, several new products have been developed.
BS-1501-224 Grade 490A for mounded pressure vessels.
API 5L X-52/X-65 Plates for Line Pipe Applications.
High Tensile Plates BSEN-100025, S-355 K2G3 and BS4360 50 DD
Specifications for export with sub-zero impact toughness, thicker plates
in boiler quality grade.
SAILMA 300 HI plates in 75 & 80 mm thickness were developed for
DLW, Varanasi, for application in locomotive base plate.
DMR-249 A (ABA grade) plates with stringent toughness requirement
at sub-zero temperature was developed for Defence Research Lab,
Hyderabad.
Corrosion resistant Molybdenum rail (52 kg) was developed and
supplied to Railways.
Commercial production of Cu-Ni-Cr Plates for corrosion resistant (with
corrosion resistance index of 6 Min.) applications has been successfully
done for customers like BHEL & TISCO.
Commercial production of 25 mm TMT- Fe 415 and TMT- HCR 500
bars at Merchant Mill. 950 mm High Tensile impact tested IS 8500 Fe
540 B Plates were successfully rolled and supplied for the first time.
63 mm High Tensile Plates of DIN 17100 St 52.3 were successfully
rolled and supplied for the first time.
API X-60 plates were developed in up to 3270 mm width in thickness
range of 14-22 mm for pipeline segment.
SAILMA 300 HI plates in 75 & 80 mm thickness were developed for
DLW, Varanasi for application in locomotive base plate.
A new segment - Windmill Tower was identified in Non-conventional
Energy seector and supplies to the tune of 2500 T/month is being made
to customers like L&T, ECC & ATMASTCO.
DMR-249 A (ABA grade) plates with stringent toughness requirement
at sub-zero temperature was developed for Defence Research Lab,
Hyderabad.
Narrow width slabs in 180 mm thickness, in 205x290 size in SWR 14
grade with specific chemistry, and Hy blooms in 205x 265 size and
205x325 size in SWR 14 grade were developed at BBM for cycle
manufacturers.
Besides, successful trial production of wire rods of EN-8 grade high
carbon steel, and Weather Resistant Cu-P Plates for corrosion resistant
applications have been done.
Lower tonnage orders of non-standard size plates with lower slab weight are
also being executed. Plates from Bhilai have been exported to Europe,
America, Middle East, South East Asia from 1986.
39
The Cutting Edge in Steel Making
Vacuum Arc Degassing: This unit ensures production of low sulphur steel
with lower gas contents. Precise control of casting temperature, composition
and improved steel cleanliness is achieved.
RH Degasser: A 130 T capacity RH (Ruhrstahi Heraus) Degassing Unit was
installed mainly to remove hydrogen from rail steel. All rail heat produced in
SMS-II have hydrogen level < 1.5 ppm.
Ladle Furnace: It is installed to process steel to reduce diversion due to
chemistry and to process cold heats or return heats. The 130 T furnace also
has benefits like reduction in tapping temperature of BOF, improvement in
lining life of BOF, etc. It acts as a buffer between BOF & CCM for holding
the heats, reduce consumption of ferro-alloys, carbonisers and deoxidiser and
produce cleaner steel.
BSP is the sole supplier of rails to Indian Railways and is also a dominant
producer of long products and plates in India. However, in the past few years,
its market share is under pressure, mainly on account of entry of other
manufacturers such as M/s. Welspun and M/s Jindal Steel & Power Limited in
the field of plates and rails.
To meet enhanced competition from both domestic and international
manufacturers, the future requirements of customers and to retain its market
share in various segments, modernization and expansion of BSP is a necessity.
Project life cycle
40
Conceptualisation
Formulation of proposal
Feasibility studies report
Investment decision
Environmental Clearance
Administrative Approval
Engagement of consultant
Detailed Project Report
Technical specification
Financial Closure
Contract Finalisation
Execution of Contracts/project
Monitoring and Control
Completion of construction
Commissioning of project
Performance guarantee test
Handing over to operation
Closure of contracts
Completion cost and capitalisation
Post project Evaluation and Report
PROJECT FINANCE & ACCOUNT
41
At the time of the country‟s independence in 1947, it was
confronted with various economic and social problems that require to be
tackled in a planned and systematic manner. India was primarily an agrarian
economy; it had a very weak industrial base, low level of savings/investments
and lacked infrastructural facilities. A vast percentage of the population was
extremely poor. Their existed considerable inequalities in income and regional
imbalances in economic attainments. Under such circumstances, a bag effort
was required from the government. The private sector had neither the
necessary resources in terms of funds, nor they will to assume risks involved
in long generation investment projects. Moreover, the financial returns on
such projects were too low to attract private sector enterprises investment.
Give the type and range of problems faced by the country on its economic,
social and strategic fronts and the various imperatives such as the necessity on
the part of government to use the public sector as an instrument for self-reliant
economic growth so as to develop a sound agricultural and industrial base,
diversify the public economy and overcome the economic backwardness.
In view of the above expectations for continued large
investment in PSU, there has been a significant growth, both in number and
investments, in such enterprises over the years, their declining role in the
recent years notwithstanding. For instance, from a modest investment of Rs.
29 crore in 5 PSU as on April 1, 1951, investments grow to Rs 3, 24,632 crore
in 240 such enterprises by march 31, 2002.
The predominant considerations for continued large
investments in PSU were
(i) to accelerate the growth of core and strategically important sectors like
railways, telecommunications, defense, etc;
(ii) to invest in the consumer oriented industries such as drugs and food
industries, with a view to ensure easier availability of vital articles of
mass consumption at economic and reasonable prices;
(iii) To take over sick units from private sector enterprises in order to
sustain production and protect employment.
The project finance & accounts section is broadly covered under the following
five headings:
1. Capital Budget
2. Project Concurrence
3. Zonal Accounts
4. Works Compilation
5. Import Account
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1. CAPITAL BUDGET SECTION
Before project finance & Account covered goes on FEASIBILITY REPORT
A) Initiation and submission of investment proposal.
Capital investment proposals are initiated by various
shops/departments. These shops/departments submit their investment proposal
in the prescribed format to the project planning & Engineering
Department(PP&E). PP&E is the nodal agency for submission, processing and
decision of all investment proposal. PP&E makes a preliminary scrutiny and
sends the investment proposals for finance capital budget section, industrial
engineering department, O&M and BEDB.
These proposals are studies in capital budget section and checked with respect
to following points:-
1. Whether any techno-economic/feasibility report for the proposal
has been prepared or not. If any techno-economics has been
prepared, the pay-back period, NPV, IRR, ROI & Sensitivity
analysis of the investment proposal is checked.
2. If the proposal is for replacement of the asset, whether write-off
sanction of assets being replaced has been obtained by the shop.
3. Whether the cost estimate prepared by the shop/consultant is
correct.
4. Proposal is studies with respect to need, the process, benefits,
and technical/legal/financial implications.
These proposals are then discussed in investment planning units (IPU)
meetings. The in-charge of PP&E is chairman of the IPU committee. Officers
of the capital budget section attend the IPU meeting as member of the
committee. Other members of the IPU committee are:
1. Representation from industrial Engineering Department
2. Representation of the Organizations & Methods Department
3. Consultant (BEDB, CET or other)
4. Proposing Department
5. Material Management Department
6. Executing Agency
7. Specialized agencies/Consultant
The IPU committee thoroughly examines the investment proposal
under the following aspects:
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a) Technical feasibility
b) Economic viability
c) Commercial aspects
d) Financial aspects
e) Others
Depending on the merits of the proposal, the IPU committee either
recommends it or may reject it or may suggest modifications for further
consideration.
B) Approval of the investment proposal
Proposals recommended by IPU are put up for Management‟s approval by
PP&E Deptt. These proposals are received in the capital budget section before
management approval for final scrutiny of the proposal.
Scheme sanctioning Authorities are as under:
C) Budget Certification
All contractual agencies (incl. contract cell, Turnkey cell and Material
management department) before issuing award letter/placement of final
purchase order/Letter of intent/for procurement/work to be done under any
capital scheme are required to obtain budget certification from capital budget
section. While certifying budget section has to verify the availability of budget
and has to see that whether the material being procured or work order/contract
being awarded is as envisaged at the time of approval.
D) Monthly Expenditure Report
A monthly report of capital expenditure incurred on various project is
compiled at the month end and is sent to corporate office (project Directorate
and Finance Directorate). Copies of the report are also to sent to project
planning & Engg. Deptt. (PP&E) and project Monitoring cell (PMC). A
summarized monthly report of capital expenditure is also sent to MD, ED
(F&A), ED(Proj), ED(Works), ED(MM), GM(F&A), GM(Proj), GM(PP&E
& BEDB).
For the purpose of the monthly report information from various section of
finance department has to be obtained. These sections are:
1. Zonal Accounts sections of project finance
2. Store Bills Section
3. Project Accounts section
4. Operation Accounts Section
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5. Township Accounts Section
E) POST COMPLETION AUDIT:
All major schemes are reviewed by the post completion Audit (PCA)
committee after one year of commissioning of the scheme.
Committee for PCA:
a) Head of department where the project was executed is the chairman of
the committee.
b) Representative of concerned department
c) Project co-coordinator/Officer
d) Representative of Finance (capital budget section)
e) Representative of PP&E
f) Representative of executive agency
g) The consultant
h) Representative from IED & O&M as the case may be. Chairman of
each post completion audit committee convenes the post completion
audit meeting and coordinates preparation of the “post completion
Audit Report”. The post completion report is prepared in the format
issued by project directorate of SAIL. The report is submitted to the
Sanctioning Authority.
The capital budget section is required to compile following information for
preparation of post completion Audit report:
a) Activity-wise Actual completion cost of the project vs. sanctioned cost
b) Cost over-run analysis:
Physical factors
Fiscal factors
c) Time over-run Analysis
d) Phasing of Expenditure
F) Budget Provision & Annual Budget Preparation
During each financial year in the month of June-July, finance department
prepares the Revised Budget estimate (RE) & Budget estimate (BE) for
capital expenditure against all running/ recently completed and forthcoming
AMR schemes.
2. PROJECT CONCURRENCE
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Project concurrence section (also known as project/work finance)
handles all the contracts executing most of the works of capital nature, also
executes work of revenue nature off-loaded by works departments to project
department and also, executes all the works of revenue nature pertaining to
project department itself like civil, repair and maintenance jobs in Expansion
building, site offices, TPL workshop, CEZ etc.
All the work of capital nature are cleared through IPU committee
before administrative approval of competent authority. Under schemes where
the executing agency is project department all activities like estimate, tender,
award, operating, contract closure etc for all contracts to be placed under the
scheme are carried out by project department through concurrence of project-
finance (PE).
The contracts placed for execution of schemes can be broadly
classified as Turn-key and non-turn-key. For dealing with these two different
types of contracts separate contract cells have been formed under the project
department viz,. Turn-key cell (TKC) and project-contract-cell (PCC). Under
a turn-key contract total scope of work and entire responsibility of successful
commissioning of the package is entrusted to the contactor.
Various Stages of Concurrence by Project Finance:
1. Tendering and tender documents:-
Before calling of tender approval of management with the concurrence of
finance is obtained with respect to
a) Mode of tendering
b) tender schedule
c) Block estimate
d) Notice Inviting Tender (NIT)
e) Special terms of the contract
f) Payment terms and
g) Eligibility criteria
Each proposal is examined with respect to above mentioned points and
concurred keeping in view the guidelines given in various documents like
project/contract management manual, Rate contract with private party, Rate
contract with HSCL, Delegation of powers (DOP), Purchase/contract
procedure 2000 and standard bidding document.
2. Receipts and Opening of Tenders:
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Tenders are to be opened on due date of tender opening. However, before
opening it is ensured that three or more offers have received, earnest money as
required is given by the tenders. In case of less than three offers are received,
it is ensured that three attempts were made and competent authority‟s
approval is obtained to open the offers.
3. Tender Evaluation, Negotiation, Approval and Award:
Comparative statement along with complete offer of each party is checked in
finance. In case of non-turnkey contract, no commercial deviations to BSP‟s
terms and conditions are normally allowed. Prices are compared taking into
account any rebate/discount offered by the bidder. In case the L1 offer is
within the approved range of the estimate the work is awarded. Otherwise
negotiations are held with the L1 bidder only. If the prices are found
acceptable and workable, the work is awarded to L1 bidder after the approval
of competent authority subject to budget availability.
In case of a turnkey contract bidders normally give their deviations to our
terms and conditions of SBD (Standard Bidding Document). These deviations
are examined and discussed in the commercial committee before it is
discussed with individual bidders. Before price opening all the bidders are
made commercially at par by either loading their prices for acceptable
deviations or intimating to other bidders about these deviations. Deviations by
the bidders on vital provisions of the SBD are asked to withdraw with or
without withdrawal price. Bids with unacceptable deviations are treated as
non-responsive and rejected. Before price opening it is also ensured that the
bids are technically acceptable.
4. Contract (Document) Finalization:
Contract is finalized based on the SBD, Technical specifications and
subsequent clarifications/confirmations on agreed terms and conditions in
commercial discussions with the successful bidder.
5. Execution of contract:
During execution of the contracts that are vetted if finance include bank
Guarantees, Insurance policies, EPF clearance, sales tax and income tax
clearance certificates, labour licences etc. it is also ensured that payments are
made as per the terms and conditions of the contract. Amendments to the
contract are normally not accepted. In exceptional cases they are examined
and are incorporated after the approval of competent authority. Extra clims
and recoveries are settled as per the terms and conditions of the contract.
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Rates for extra items are concurred in finance based on existing rates available
or the market rates whichever is lower.
6. Contract Closure:
In case of turnkey contracts a formal closure of the contract is done with the
approval of management. Issues like delay analysis and LD for delay, pending
recoveries and claims for extra work by contractors are discussed and
finalized in closure committee. The recommendation of the committee are
processed for the approval of management and contract is closed. In case of
non-turnkey contracts final deviation statement is processed for management‟s
approval before the contract is closed. Reasons for deviation are analysed and
rates for extra items, if any, are concurred in finance.
3. ZONAL ACCOUNTS
Activity of Zonal accounts section starts after award of contracts (TK)/ Works
contract/work order to the contractors by project (TK Cell)/Contract cell for
execution of a project/work/job. This contract is operated until final payments
is released based on closure of contract/Final Deviation. During this period
following activities are controlled.
1. Accounting and control of materials issued to projects
a) For Issue of Material: Indents are floated by operating Engineers
to collect materials from store. Zonal Accounts verifies following
details as per provision in the tender schedule for items and
quantities.
1) Reference of contract no. and date, name of work, party‟s name.
2) Demanded quantities
3) Responsibility code, expense code and scheme no.
4) Material Description as per tender schedule/billing schedule
5) Mode of issue i.e. free of cost or cost recovery basis.
After ensuring above details, indents are registered and handed over to
operating department for collection of materials from store.
b) Accounting of Materials: After receiving debt from tore a/c
section for material issued to contractors, the debit related to issue
on cost recovery basis is transferred to intermediary suspense
account and issue of materials on free of cost basis is transferred to
the expense code. As regards recovery towards cost of materials
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through bills is transferred to the expense code. As regards
recovery towards cost of materials through bills is credited
c) To intermediary suspense a/c and balance of this account after
completion of work is transferred to Expense code.
d) Control of Material A/C : After passing above journal entries
contractor wise material A/c is maintained till completion of work
and this accounts is verified with party‟s material statement
submitted with final deviation statement/ proposal for closure of
contract.
2) For payment to the contractor: Bills/invoices are processed by operating
Engineers along with measurement book duly certified and signed by them
indicating following details.
For all contracts.
1) Reference of contract no. and date, name of work, contractor‟s
name
2) Contractor‟s bill/invoice no. and date
3) Period of execution till date and measurement till date
4) Item wise execute, Rate and amount.
5) Deduction if any towards security deposit, Taxes and duties and
issue for material on cost recovery basis.
6) Labour License/ ESP clearance certificate
7) Registration of PAN NO. CGCT and CST NO.
4.WORKS COMPILATION
accounting of capital expenditure incurred by bsp
maintenance of cwip account for all running schemes
monitoring of running schemes to identify and book to cwip a/c any
shortffall with reference to actual execution
identifying schemes with little or no progress for appraising
management
capitalisation of assets procured under all sanctioned schemes as and
when declared completed
identification of in-house expenditure resulting in a fixed asset, for
capitalisation (after obtaining approval of managenent)
ensuring capitalisation with correct amount, date, location, asset code
ensuring compliance of accounting policies and accounting standards
ACCOUNTING OF CAPITAL EXPENDITURE
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1. Payments to contractors under A/Ts, work orders & TK contracts
Project finance & Accounts- Zonal A/cs
a) under turnkey contracts:
b) under Non
c) Import A/cs
d) Store bills
e) Operation A/cs
f) Township A/cs
2. Consultancy charges:
Scheme wise debits for consultancy charges are received from CET, Ranchi
every quarters through IUCA. These debits are allocated to various running
scheme and investment proposals under consideration and booked to WIP by
WC. In case any debit is received against a completed scheme or an
investment proposal, which is not going to be considered for approval by
management, the same is charged off to revenue by WC.
3. Expenditure during construction (EDC):
Accounting of EDC including interest during construction is dealt by central
A/c section based on inputs given by WC w.r.t. major schemes being executed
by project dept. EDC arises out of salaries and wages paid to the employees of
project dept, the power consumed by project dept etc. IDC is allocated by
corporate office based on funding pattern for BSP.
4.Issue of steel & other stores:
For all stores to scheme whether drawn by shops or project Zones, the debit
for the cost of that item is received from stores A/c section through MMIS
every month.
For stores issued to project, the debit is first received in zonal A/c section
where after scrutiny the debit is passed on to WC. But in case of store issue to
a contractor on cost recovery basis, the debit is kept in a material issue
suspense A/c and the recovery from the party is credited to this A/c.
4. In-house fabrication:
Details of fabrication done at TPL workshop are every month by WC. Cost
pertaining to capital schemes is booked to WIP under the appropriate scheme.
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For work done through various Engineering shops the total cost of work is
obtained from costing section with break-up of cost of material, labour,
services, consumables, power, machining etc. based on information given by
WC. This cost is booked to WIP in WC by crediting various revenue A/c
codes. thru ISA code 28555.88 or 28599.88.
A database is maintained by WC section for getting scheme-wise WIP and
capitalization can also be obtained readily.
CAPITAL BUDGET SECTION
Formulation of investment proposals at plant
For all investment proposals, a feasibility report (FR) should be prepared. The
plants may assign preparation of FR to the in-house consultant, centre for
Engineering & Technology (CET), for before submission to the IPU. In
exceptional cases, outside consultant may be appointed with due approval of
the competent authority. The consultant may involve representative from
environment control division of the plant, if required. The Consultant shall
explore all options with techno-economics to arrive at the cost-effective
scheme. FR should,inter-alia, include minimum technical solution and cut-off
capital cost.
In the case of market oriented proposals, specific vetting by the central
marketing organization (CMO) on the following shall be obtained by the plant
before the proposal is put-up for approval of competent authority:
Increase in sales realization due to augmentation in production of
finished products;
Increase in sales realization on account of improvement in
mechanical/chemical properties;
Increase in sales realization on account of improvement in physical
properties/ condition viz. better surface finish, removal of bends, better
packaging etc.
While preparing FR, the consultant shall make a realistic assessment of input
parameters, so as to ensure proper designing of equipment and efficient
operation of plant after commissioning. The consultant shall also verify
important input parameters, which are vital for the success of the scheme.
a) FEASIBILITY REPORT
For each new project a feasibility report is prepared. The FR contents
following details:
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1. Executive Summary:
Summary of project background & history
Summary of market analysis
Raw material & Supplies
Location, site & environment
Engineering & technology
Organisation & overheads cost
Human resource
Investment appraisal
Advantages
Drawbacks
2. Project background & basic idea
* Description of the project idea
* Project promoter or initiator
* Project history (Development)
* Investigations already preformed
* Cost of preparatory studies & related investigations.
Last Five years Performance
YEAR INPUT OUTPUT MILL UTILISATION
2002-03 - - -
2003-04 - - -
Like that
Existing Facility
Need of installation of facility
Production details of five years
Annual business plan
2. Selection of alternatives.
3. Project Description
Proposal and Scope of work
Layout
Demand
Market analysis
Envisaged technological parameters.
Instrumentation, control & automation
Utilities & Services
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Fire fighting system
Civil work
Design consideration
Technical specification
4. Structural
Dismantling
Modification
Design consideration
Specifications of steel structural work
Pollution control
Manpower requirement
4. Location, site & environment
5. Engineering & technology
6. Organization & overheads cost
Wages and Salaries
Factory overheads
Maintenance
Rent
Insurance
Taxes
Overheads cost
7. Raw material & supplies
cost by Unit cost
Annual cost
Overheads cost
8. Human Resource
9. Project Implementation
Implementation schedule
Implementation strategy
Technical eligibility criteria of bidders for proposed package
Basic accounting statement
Methods of investment appraisal
10. Financial analysis
Capital cost estimates
Taxes & Duties (excise duty, custom duty, cst@, Vat@, service tax,
education tax, Fright & insurance)
Mode of finance
Phasing of capital expenditures
Interest during construction
Cost benefit analysis
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Financial analysis
Net working capital
NPV
Internal rate of return
Interpretation of the IRR
Interpretation of the payback
Simple & annual rate of return
11. Recommendations
b) Sanctioning Authority for investment proposals
Present delegation of powers for sanction of investment proposals for SAIL
plant/ Units is as follows:
Project cost limit Sanctioning Authority
1. Upto Rs. 10Cr. MDs of Integrated plant
Director (commercial)
ED, ASP/SSP/VISL
2. Rs 10 Crore to Rs. 25 Crores Chairman, SAIL
3. Above Rs. 25 crore Board
c) Investment Planning Unit ( IPU)
Investment planning unit shall be the nodal agency at the plant who will co-
ordinate the formulation and appraisal of capital investment proposals. The
existing IPU or its equivalent shall be strengthened with experienced
executives drawn from various units/ shops of the plant and shall preferably
report to the Head of project. IPU shall also make initial prioritization of the
proposals to be taken up depending upon fund availability and the business
plans of the company.
d) Project Appraisal Group (PAG)
The proposal after processing by IPU shall be considered by a high powered
“Project Appraisal Group” comprising head of works, finance, projects with
head of IPU as convenor. In addition to a representative of CET and for
market related proposals a representative of CMO may be co-opted. PAG
shall obtain commitment on benefits from the project owner and also ensure
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final prioritization of proposals at the plant level and “finance closure” i.e.
sourcing of funds for financial concurrence and approval of the chief
executive. The proposals beyond the delegated powers of the chief executive
shall be forwarded to the corporate office for approval.
e) Budgetary provision
To facilitate examination of all critical aspects/ operations/ project parameters,
the project to be taken up should be in conformity with the Business plan of
the company. Necessary provision should exist in the five year plan. The
proposal should be taken up within the available provisions as per the
prioritized list as well as the annual budget. For proposals which are not
covered in the prioritized list but are considered urgent for implementation,
adequate justification needs to be given for taking up the proposal indicating
the schemes which may be dropped in lieu of the same.
f) To-stage project Approval
1. Stage-I (In-principal) Approval
2. stage-II ( formed up cost ) Approval
g) Time Schedule for Appraisal of proposals
Receipt of the proposal in project Directorate
Dispatch of proposal copies to the Appraising agencies and receipt of
comments
Receipt of clarifications from the plant
Holding of meeting at project directorate for freezing of all outstanding
issues, if needed
Finalization of investment proposal on the basis of clarifications from
plant
Finalization of Approval Note by the project directorate
Concurrence of proposal by finance directorate and submission for
approval of Chairman, SAIL
h) Importance of investment decisions
Investment decisions require special attention because of the following
reasons
They influence the firm‟s growth in the long run.
They affect the risk of the firm.
They involve commitment of large amount of funds.
They are irreversible at substantial loss.
They are among the most difficult decisions to make.
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i) Types of investment decision
There are many ways to classify investments. One classification is as follows:-
Expansion of existing business.
Expansion of new business.
Replacement and modernization.
ii) Expansion and diversification
A company may add capacity to its existing product lines to expand existing
operations. For example the Gujarat state fertilizer company (GSFC) may
increase its plant capacity to manufacture more urea. It is an expansion of new
business requires investments in new products and a new kind of production
activity within the firm. There is also a kind of unrelated diversification.
Investment in existing or new products may also be called as revenue
expansion investment
iii) Replacement and modernization.
The main objective of modernization and replacement is to improve operating
efficiency and reduce costs. Cost savings will reflect in the increased profits,
but the firms revenue may remain uncharged. Assets become outdate and
obsolete with technological changes. The firm must decide to replace those
assets with new assets that operate more economically. Replacement decisions
help to introduce more efficient and economical assets and therefore, are also
called cost reduction investments. However replacements decisions that
involve substaintial modernization and technological improvements expand
revenues as well as reduce costs.
Yet another useful way to classify investments is as follows:-
Mutually exclusive investments
Independent investments
Contingent investments
INVESTMENT EVALUATION CRITERIA
Three steps are involved in the evaluation of an investment:-
Estimation of cash flows
Estimation of the required rate of return
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Application of a decision rule for making the choice.
Investment decision rule
The investment decision rules may be referred to capital budgeting
techniques, or investment criteria. A sound appraisal technique may be used to
measure the economic worth of an investment project. the essential property
of a sound technique is that it should maximize the shareholders wealth. The
following other characteristics should also be possessed by a sound
investment evaluation criterion:
It should consider all cash flows to determine the true profitability of
the project.
It should provide for an objective and unambiguous way of separating
good project from bad projects
It should help ranking of projects according to their profitability.
It should recognize the fact that bigger cash flows are preferable to
smaller ones and early cash flows are preferable to later ones.
It should help to choose among mutually exclusive projects that projects
which maximizes the share holders wealth.
It should be a criterion which is applicable to any conceivable
investment project independent of others.
These conditions will be clarified with the features of various investment
criteria.
Evaluation criteria
A number of investment criteria are in use in practice. They may be grouped
in the following two categories:
1. Discounted cash flow (DCF) criteria
Net present value (NPV)
Internal Rate of Return (IRR)
Profitability Index (PI)
2. Non Discounted cash flow criteria
Payback period (PB)
Discounted payback period
Accounting rate of return (ARR)
Discounted payback is a variation of the payback period method. It involves
discounted cash flows, but as we shall see latter it is not a true measure of
investment profitability. As practically NPV is the most valid technique of
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evaluating an investment project. It is consistent with the objective of
maximizing shareholder‟s wealth.
NET PRESENT VALUE METHOD
The net present value method is the classic economic method of evaluating the
investment proposals. It is a DCF technique that explicitly recognizes the time
value of money. It correctly postulates that cash flows arising at different time
periods differ in value and are comparable only when their equivalents present
values are found out. The following steps are involved in calculating NPV‟s:-
Cash flow of the investment project should be forecasted based on
realistic assumptions.
Appropriate discount rate should be identified to discount the forecasted
cash flows. The appropriate discount rate is the projects opportunity
cost of capital, which is equal to the required rate of return expected by
investments of equivalent risk.
Present value of cash flows should be calculated using the opportunity
cost of capital as the discount rate.
Net present value should be found out by subtracting present value of
cash outflows from present value of cash inflows. The project should be
accepted if NPV is positive (i.e. NPV>0)
Evaluation of NPV method
NPV is the measure of an investment‟s profitability. It provides the most
acceptable investment rule for the following reasons:-
Time value: It recognizes the time value of money a rupee received
tomorrow.
Measure of true profitability: it uses all cash flows occurring over the
entire life of the project in calculating its worth. Hence it is a measure
of the projects true profitability. The NPV method relies on estimated
cash flows and the discount rate rather than any arbi9trary assumptions,
or subjective considerations.
Value additivity: The discounting process facilitates measuring cash
flows in terms of present values; that is in terms of equivalent current
rupees. There fore the NPV‟s of projects can be added. This is called
value additivity principle. It implices that if we know the NPV‟s of
individual projects the value of the firm will increase by the sum of
their NPV‟s. we can also say that if know values of individual assets the
firms value can simply be found out by adding their values.
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Shareholder value: The NPV method is always consistment with the
objective of the shareholder value maximization. This is the greatest
virtue of the method.
Are there any limitations in using the NPV rule? The NPV method is a
theoretically sound method. In practice it may pose some computational
problems.
1.Cash flow estimation- the NPV method is easy to use if forecasted cash
flows are known. In practice it is quite difficult to obtain the estimates of cash
flows due to uncertainty.
2.Discount rate- it is difficult in practice to precisely measure the discount
rate.
3.Mutually exclusive projects- Further caution needs to be applied in using
the NPV method when alternative projects with unequal lives or under funds
constraint are evaluated. The NPV rule may not give unambiguous results in
these situations.
4.Ranking of projects- It should be noted that the ranking of investments
projects as per the NPV rule is not independent of the discount rates. The
impact of the discounting becomes more severe for the cash flow occurring
later in the life of the project; the higher is the discount rate the higher would
be the discounting impact.
INTERNAL RATE OF RETURN
The internal rate of return (IRR) method is another discounted cash flow
technique, which takes account of the magnitude and timing of cash flows.
Other term used to describe the IRR method are yield on an investment,
marginal efficiency of capital, rate of return over cost, time adjested rate of
internal return and so on. The concept of IRR is quite simple to understand in
the case of a one period project.
For example that you deposit Rs. 10000 with a bank and would get back Rs.
10800 after one year. The true rate of return on your investment id s 8%. You
may observe that the rate of return of your investment (8 percent) makes the
discounted (present) value of your cash inflow (Rs. 10800) equal to your
investment (Rs. 10000)
By formula if we calculate
R= C1-C0/C0
R= C1/C0-1
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Hear rate of return r depends on the project‟s cash flows rather than any
outside factor. Therefore it is referred to as the IRR. The IRR is the rate that
equates the investment outlay with present value of cash inflow received after
one period this also implies that the rate of return is the discount rate which
makes NPV=0. there is no satisfactory way of defining the true rate of return
of a long term assets. IRR is the best available concept. We shall see that
although it is a very frequently used concept in finance, yet at times it can be a
misleading measure of investment worth.
It can be noted that the IRR equation is the same as the one used for the NPV
method. In the NPV method the required rate of return, is known and the net
present value is found, while in the IRR method the value of r has to b
determined at which the net present value becomes zero.
Uneven cash flows: calculating IRR by Trial and Error
The accept rule of reject rule using the IRR method is to accept the project if
its internal rate of return is higher than the opportunity cost of capital (r>k).
here k is also known as the required rate of return or cut off, or hurdle rate.
The project shall be rejected if its internal rate of return is lower than
opportunity cost of capital (r<k) the decision maker may remain indifferent if
the internal rate of return is equal to the opportunity cost of capital. Thus the
IRR acceptance rules are:
* Accept the project when r > k
* Reject the project when r < k
* May accept the project when r = k
The reasoning for the acceptance rule becomes clear if we plot NPVs and
discount rates for the project.
Evaluation of IRR method
IRR method is like the NPV method. It is a popular investment criterion since
it measures profitability as a percentage and can be easily compared with the
opportunity cost of capital. IRR method has following merits:
Time value the IRR method recognized the time value of money.
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Profitability measure it considers all cash flows occurring over the
entire life of the project to calculate its rate of return.
Acceptance rule It generally gives the same acceptance rule as the
NPV method.
Shareholder value It is consistent with the shareholders wealth
maximization objective. When ever a project IRR is greater than the
opportunity cost of capital, the shareholders wealth will be enhanced.
Like the NPV method the IRR method is also theoretically a sound investment
evaluation criterion. However IRR rule can give misleading and inconsistent
results under certain circumstances. Here we briefly mention the problems
that IRR method may suffer from:
Multiple rates A project may have multiple rate or it may not have a
unique rate of return. As we explain later on those problems arise
because of the mathematics of IRR computation>
Mutually exclusive projects It may also fail to indicate a correct
choice between mutually exclusive projects under certain situations.
Value additivity Unlike in the case of the NPV method, the value
additivity principle does not hold when the IRR method is used-IRR of
projects do not add.
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Live Project: Installation of Slab Caster, RH Degasser and Ladle Furnace in SMS-II
Market Assessment
As per the International Iron & Steel Institute (IISI) forecasts, the Indian Steel
industry is likely to grow at over 7% per annum till 2015. The National Steel
Policy published by Ministry of Steel in 2005 also forecasts that the demand
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for steel in India will grow from the current level of about 40 Mtpa to 110
Mtpa by 2020, indicating a growth rate of over 7%.
India is emerging as one of world‟s fastest growing significant economies
with anticipated GDP growth rate of 8% plus a year. Domestic demand for flat
products will emanate from segments such as capital goods including
electrical and industrial machinery and equipment, automobile industry, pipes
and tubes, consumer durables, containers, storage vessels, tanks, food
packaging, ship building, pressure vessels, construction/manufacturing
projects, etc. Demand for long products will be primarily driven by buoyancy
activity in housing and construction sector, announcement of railway freight
corridors and demand from Railways.
Significant proportion of announced green-field capacity is unlikely to be
developed in the next five years as the capital requirements estimated are over
$75 billion, which may be difficult to be raised internally. However, brown-
field expansion by existing steel-makers, the backward integration of re-
rollers and the forward integration of smaller DRI or pig iron producers into
steel making coupled with the emergence of 2-3 green-field projects, will push
up steel output. In the medium-term, a mismatch between domestic steel
output and consumption demand may develop, which force the Indian steel
manufacturers to increasingly look out for export opportunities. India is
placed in a vantage position for exporting to the countries in the Asian
continent, which is economically the fastest growing region in the world.
The National Steel Policy has set a domestic steel production target of 100
Mnt by 2019-20 to meet projected internal demand of 90 Mnt. It has been
projected that to meet the growing demand, crude steel output should increase
to 72.7 Mnt by 2011 itself, with a CAGR of 9.2 percent. Taking into
consideration the demand drivers from end user industries and the trend in
apparent consumption during FY 2002 to FY 2006, the projected growth rates
between FY 2007 to FY 20012 for flat and long products have been assumed
as mentioned below.
Projected Growth Rates for FY 2007 to FY 2012 (Flat & Long Steel Products) Flat Products % age
HR Sheets 20
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Plates 13
Electrical Steel Sheets 12
HR Coils / Strips 10
GP / GC Sheets 10
CR Sheets / Coils 8.5
Tin Plates 2.5
Pipe (Large Dia) 2
Tin Free Steel 0.1
TMBP 0.1
Long Products
Structurals 8.7
Bars & Rods 8.3
Railways Materials 8
Companies such as Mittal Steel, Posco, Tata Steel, SAIL, Essar Steel, Jindal,
JSPL, Rashtriya Ispat Nigam, Bhusan Steel, etc have announced massive
investment plans. Rs 2,71,000 crore of investments have been envisaged
(through 102 MoUs with GOI) to add 103 Mnt to the domestic capacity. Many
of these companies are, however, announcing expansion plans to garner the
mining leases for iron ore (the crucial input) before other competitors could
gain control over these limited resources. Steel projects generally have a long
gestation period and are set up in modules of 3 to 4 Mntpa. It is, therefore felt
that many of these MoUs may not actually fructify.
Steel business is in the commodity sector and is characterised by cyclical
movements. Since steel consumption is positively linked to GDP growth and
more so to growth in infrastructure, a healthy growth in steel consumption can
reasonably be expected in the next 5 years, when BSP‟s expansion capacity
would go on stream. However, as already mentioned above, there may be
intermediate periods of demand-supply mismatch, when the domestic demand
will not be able to absorb all the additional steel output and the Indian steel
producers would then need to export an increasing proportion of their
production so as to maintain a high level of capacity utilization.
SAIL, with its fully integrated operations, and low debt gearing is already a
low cost producer of steel. The proposed modernization-cum-expansion
schemes would further enhance SAIL‟s competitiveness and its ability to
market its product in the international markets. It may be further mentioned
that though steel sector is cyclical in nature, it is not expected to witness the
rock-bottom prices, which prevailed in early 2000. If SAIL can successfully
enter into long-term contracts for procurement of coking coal at reasonable
rates, it would be able to withstand the future cyclical changes in the business,
64
market its full output to the domestic / international customers and its
operations would be viable during all phases of business cycle.
65
Need for Current Expansion Plans and Project Details
At present, production of hot metal in BSP is through 100% BF (blast furnace)
process which is well established as more than 90% of world production is
through this process. BSP has got two Steel Melting Shops, SMS – I and SMS
– II. In SMS – I steel is produced through Twin Hearth Furnace – ingot
casting route. In SMS – II steel is produced through BOF (Basic Oxygen
Furnace), secondary refining and continuous casting route. Rated capacity of
SMS – I is 2.5 Mt of ingot steel. Rated capacity of SMS – II as per DPR is 1.5
Mt cast steel. The current plan is to increase SMS – II production
progressively to a level of 2.5 Mt per annum and subsequently to 2.8 Mtpa by
2012 as per SAIL‟s Corporate Plan.
Steel Melting Shop – II of BSP has got 3 BOFs, each of capacity 130t (max.)
in Converter Shop. In Continuous Casting Shop (CCS) there are 3 online
Argon Rinsing Units, one offline Vacuum Arc Degasser (VAD) unit, one
offline Ladle Furnace (LF), one offline RH Degasser (RHD) unit, 3 single
strand slab casters, one combination slab cum bloom (3 strand) caster and one
four strand bloom caster. Slabs are sent for rolling into plates in Plate Mill and
blooms are sent for rolling into rails in Rail Mill.
Continuous Casting Shop (CCS) of BSP was commissioned in 1984 based on
design of erstwhile USSR. No major modernization of the slab casters have
been done since start up. Technology, equipment and design have become
obsolete. Quality of slabs being produced is poor. Lot of rejections are taking
place due to casting defects especially in special quality plates and thick plates
of all quality. Besides, productivity of the caster is low. Existing casters need
revamping with state of art technology to remain in the market. Revamping of
caster shall lead to loss of production due to shutdown. Therefore, installation
of a new slab caster is a necessity.
There is big demand of line pipe steel (API grade) which requires vacuum
degassing. BSP is not producing this grade at present. Railways have also
demanded that all rail steel should be passed through RH Degasser only.
Keeping in view future projected demand of Railways, there shall be
constraint to process all Rail steel through existing RH Degasser. Ladle
Furnace is complimentary to RHD to take care of temperature drop during RH
treatment. Therefore, installation of second RH Degasser (RHD) and Ladle
Furnace (LF) is necessary along with installation of new caster.
SMS – II has got 3 number BOFs each of capacity 130t (max.) in Converter
Shop. During the tapping and travel of steel from BOF to casting bay and
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CCS, online inert gas purging is done. Slag cut off device (dart type) is used
in BOFs to restrict slag entry into steel ladle during tapping. Production from
SMS –II during 2004-2005 was 2.335 Mt. Details of production in last three
years in SMS – II is given at……… There is a plan to increase SMS – II
production progressively to a level of 2.5 Mt per annum by 2007. Production
from SMS – II is planned to be increased to 2.8 Mtpa by 2012 as per corporate
plan by introducing several de-bottlenecking schemes and balancing facilities.
Secondary refining units consist of one off line VAD unit (commissioned in
1991), one off line LF and one off line RH Degasser unit (commissioned in
2000). There are 3 nos. single strand slab caster (# 1, 2, 3), one no. four strand
bloom caster #5, one no. combination caster #4 (slab cum 3 strand bloom
caster producing blooms at present) and Slab and Bloom Storage Yard
(SBSY). Slabs produced are sent to Plate Mill for rolling into plates and small
quantities of slabs are sold as semis. Blooms are sent to Rail Mill for
production of rails. These casters are bottlenecks in increasing the production
from SMS – II due to obsolete technology, low machine availability, poor
product quality and low yield.
Shortfall in secondary refining capacity
Production potential of secondary refining unit
Design production capacity of secondary refining units installed at BSP is as
follows:
VAD 12 heats
LF 24 heats
RHD 24 heats
LF is complimentary to RH Degasser. Normally, every heat going to RH
Degasser needs heating for which it passes through LF also. Thus, installed
capacity of secondary refining units is 36 heats only (24 heats of RHD and 12
heats of VAD). Total secondary refining capacity in terms of tonnage is
8,00,000 t for RH Degasser and 4,00,000 t for VAD unit.
At present VAD is used to process boiler quality, high tensile grade, and thick
plates of all grades in limited quantity. Besides, all defence grade steel is also
produced through VAD unit. It is also being used as heating unit for rail steel
when both bloom caster no. 5 and combi-caster no. 4 are operating
simultaneously. This is to ensure timely supply of heats for sequence casting
since treatment time at LF is more than RHD. However, treatment of slab /
plate grade steel through VAD is not preferred due to following reasons:
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1. Treatment time is high, thereby, sequence casting can not be practiced.
For defence grade and grades requiring very low nitrogen, treatment
time varies from 3-4 hours. If heats from VAD are to be treated,
normally it shall be first or last heat, thereby severally limiting its
production capacity.
2. It is difficult to produce ultra low carbon grade steel, steels requiring
very low hydrogen upto 1.5 ppm and very low sulphur levels upto
0.001% needed for value added grades and API grades due to high
treatment time.
3. Not suitable for bulk production.
4. Operating cost is high.
Bulk of the slab / plate grade steel is treated at online argon rinsing unit
without being processed through secondary refining units and despatched to
caster directly. Special steel in limited quantity, which require degassing are
treated through VAD unit as mentioned above.
Production of rails during last 5 financial years (1st April to 31
st March) is
as following:
2000 – 2001 472440 t
2001 – 2002 583781 t
2002 – 2003 769168 t
2003 – 2004 808553 t
2004 – 2005 868444 t
It is clear from above trend that there is continuous increase in supply of rails
to Indian Railways which will increase in future also. Railways are projecting
a demand of 1.0 Mtpa rails in future. The existing one nos. RHD and LF unit
can not process rail steel on consistent basis beyond 8,00,000 t per annum
although these units have treated more than rated capacity.
As per the Corporate Plan 2012, SMS – II, BSP has to produce 1.75 Mtpa of
Slabs and 1.05 Mtpa of blooms, totalling to 2.8 Mtpa. Out of these 1.75 Mtpa
of slabs the majority of the grades would be vacuum treated and 100% of rail
blooms would need vacuum treatment. Since the current vacuum capacity is
restricted to 1.2 Mtpa, the shop needs augmentation in its vacuum treatment
facility along with steel heating facility.
Constraints in Slab Caster Constraints being faced in present slab casters are as follows:
1. Quality of slabs and plates being produced at present is poor. Lot of
rejections are taking place due to casting defect (both surface as well as
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internal). During 2004 – 2005 rejection due to steel defect was 4.8%. Some
of the defects are segmentation, inclusions, longitudinal cracks, spider
cracks, transverse cracks, internal porosity, oscillation marks, double
pouring, tail end rejection, dimensional inaccuracy etc. Scarfing is being
done to the extent of 60-70% on overall basis and 100% in all special
quality steels.
2. Casters are more than 20 years old based on technology supplied by
erstwhile USSR in late seventies. These casters have low productivity due
to low casting speed, higher down time due to maintenance, low machine
availability and shorter length of sequence casting.
3. API grade and other high value grade steel are not cast because of quality
problems leading to high rate of rejection of plates.
4. Rejection in thick plates (40 mm and above) of all grades is quite high.
These plates get rejected largely due to centreline segregation. These
segregations are detected during ultrasonic testing in Plate Mill which is a
normal requirement by customer. Centreline segregation occurs when
solute high in sulphur, manganese and phosphorous is present in the very
last part of the slab to solidify.
5. Slabs are cut to a length of 5 to 11 m at primary gas cutting machine. Plate
Mill feed size is 1.8 to 3.35 m. processing of all the slabs is done in Slabs
and Bloom Storage Yard (SBSY). Slabs are marked, inspected, defective
slabs scarfed and further cut in offline gas cutting machine. This leads to
lower productivity, loss in yield and higher operating cost.
There is big demand for API grade pipes especially in API X65 and API X70
grade in India which are used for oil transportation, offshore application and
natural gas transportation. Plates are input material for pipe manufacture. A
report prepared in September 2003 by BSP-RDCIS task force gave demand
projections of about 3.0 Mt of line pipe steel in the next 4-5 years. The report
also shows an installed capacity of 1.2 Mt of line pipes in India. At present,
input plates and sheets for line pipe steel are mostly imported. API grade
plates can be supplied to existing pipe manufacturer or to proposed Pipe Plant
at BSP. There is big export potential for these plates also as indicated in the
report.
Difficulties in producing API grade plates
1. API grade steel (API X65, X70) require low sulphur and low dissolved
gases like hydrogen. Requirement of UTS for these grades is 530 Mpa
for API X65 and X70 grades respectively. To achieve these physical
properties alloying elements like Niobium and Vanadium are added.
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These steel are meant for offshore application and transportation of
petroleum products, therefore, very sensitive to hydrogen induced
cracking. Treatment of these steels through vacuum degassing is
necessary.
2. Due to presence of alloying elements, these steels are very crack
sensitive and difficult to cast. Perfect machine parameters with respect
to mould oscillation, secondary cooling, strand support, machine
alignment etc. are required which are difficult to be ensured in present
casters on consistent basis.
3. Segregation leads to internal cracks in plates. It is formed in slabs
during solidification in the casters and can not be avoided in the
existing casters. During rolling, these segregations remain inside the
plates and are detected during ultrasonic testing leading to rejection of
plates.
Neither, the quality demands of API grade and other high grade steel slabs can
be met by the existing casters nor the existing casters can meet the
productivity levels as envisaged under the corporate plan 2012. Therefore,
modern casters are required to be installed in SMS – II.
Selection of Alternatives
The project consists of new slab caster, secondary refining units (RH Degasser
and LF) along with associated buildings, cranes and auxiliary units.
Secondary refining units
Functions of secondary refining units of steel are as follows:
Homogenization and adjustment of temperature and composition.
Alloying and chemistry adjustment.
Desulphurisation.
De-oxidation.
Removal of dissolved gases like hydrogen, nitrogen.
Decarburization (ultra low carbon grade)
Removal / modification of NMI (Non Metallic Inclusion)
Grain refinement
Depending upon requirement secondary refining processes are classified as
follows:
i) Vacuum Process
ii) Atmospheric Process
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Process under vacuum falls into two categories i.e. with heating function and
without heating function. In the first category are processes under vacuum
with heating function such as VAD, ASEA-SKF, RH-OB, VOD etc. in the
second category are process under vacuum without heating function such as
RH, DH, VD, Tank Degassing and stream degassing.
Processes under atmosphere also fall into two categories i.e. without heating
facility and with heating facility. Without heating facility includes stirring
process (inert gas rinsing) and injection process (powder, wire). Processes
under atmosphere using heating facility are Ladle Furnace, CAS-OB, IR-UT.
These processes also use inert gas rinsing and wire / powder injection.
Selection of process depends upon various factors like present and future
product mix, quality requirement, treatment time, volume of steel to be
treated, availability of space (ground space and height) logistics of shop,
handling facility, availability of utilities like argon, steam, availability of
power, capital cost, operating cost and consistency in achievement of quality
parameters and operating parameters continuously.
Out of all above process for removal of dissolved gases, specially hydrogen
from rail steel, the most versatile and effective vacuum degassing process is
RH (Ruhrstahl Heraus) degassing process. Selection of this process has been
done due to following reasons:
Hydrogen upto 1.5 ppm can be achieved by degassing in a very short
treatment time for rail steel and API grade steels.
Very low level of carbon, oxygen and nitrogen can be achieved in
short time for production of clean steel for plates.
Suitable for treatment of large volume of steel compared to any
other vacuum degassing process. Due to design of process,
homogenization of total bath takes place very effectively.
Higher heat weight can be treated due to less free board requirement.
Process cycle time is less and suitable for sequence casting.
Operating cost is less.
Operating experience available in SMS – II of BSP since one RH
Degasser is operating satisfactorily.
Established process worldwide especially for rail and API grade
steel production.
Consistency and reproducibility of test results.
India Railways, whom BSP is supplying rails wanted that total rail
steel should be vacuum degassed through RH route and the existing
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RH degassing facility is not sufficient to take care of the increased
quantum of rail steel envisaged in future.
RH Process
RH degasser is an effective vacuum degassing process for removal of
dissolved gases like hydrogen, nitrogen, oxygen and for decarburisation for
production of ultra low carbon steel.
RH unit essentially comprises a refractory lined vessel with snorkel (two
refractory lined tubular legs), which dips into liquid steel when vacuum is
applied to the vessel. Circulation rate is as high as 110 t/min. which enables
circulation of total volume of steel. Thus steel circulates number of times in
order to achieve high degree of dissolved gas removal. Inside the RH vessel,
the bursting bubbles of lift gas and carbon monoxide disperse the steel into
small droplets. This results in a high degree of metallurgical effectiveness of
the vacuum application. As the partial pressure of hydrogen is reduced
directly in proportion to the vacuum created in the vessel, hydrogen removal
is achieved. Level of vacuum to be achieved within 3 min. is 0.5 torr.
However, there is a temperature loss during treatment at RH unit since there is
no heating facility provided.
RH process is capable of removal of not only hydrogen but removal of oxygen
(de-oxidation), carbon and nitrogen to a very low level. For light treatment,
liquid steel is tapped unkilled or semi killed from BOF and sent to RH unit. At
the RH unit initial deoxidation occurs due to CO formation by natural
decarburization under vacuum. After 10-12 minutes of treatment final
deoxidation is carried out with aluminium or other deoxidisers. Thus, large
amount of deoxidisers can be saved by light natural decarburisation that takes
place in RH process depending upon partial pressure of CO gas. Sulphur can
also be reduced to very low level by addition of lime or wire injection. Thus,
to produce clean steel of slab or plate grade (like API, boiler quality, high
tensile grade) requiring low hydrogen, low oxygen and sulphur, RH degasser
is a very effective process. Treatment time is normally 20-25 minutes.
BSP is the sole supplier of rails to Indian Railways and enjoys monopoly. One
rail-manufacturing unit is being put up in private sector also. BSP has to face
competition from this supplier. Customer is demanding that all the rails should
be processed through RH Degasser only. This is because Railways are
demanding rails with hydrogen content of 2 ppm or less which is more
stringent than present specification IRS T-12-96. Large investment has been
already made in Long Rail project in Rail Mill very recently to supply long
rails of 80m length or in multiple of 80m to Indian Railways. SAIL has also
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agreed „In Principle‟ to meet the demand of Railways to process all rail steel
through RH Degasser.
Due to addition of carburisers in ladle and treatment at RH Degasser unit,
temperature of steel drops. To take care of this drop in temperature a heating
facility is required which is complimentary to RH degasser. Out of various
heating facility mentioned above, Ladle Furnace has been selected due to
following reasons:
i) Electrical heating is required since chemical heating can not be
considered due to restriction of Aluminium in rail steel and oxygen in
plate grades steel.
ii) LF is a very good desulphurisation unit.
iii) Treatment time is short and large volume can be treated.
iv) Homogenization of bath with respect to temperature and composition is
very effective.
v) Less operating cost.
vi) Very versatile, user friendly, popular secondary refining process for
raising temperature.
LF Process
Ladle is the refining vessel in the LF process. Ladle filled with steel comes
below treatment station. Ladle top is covered by ladle roof which is supported
on columns having hydraulic cylinders for lowering and lifting. Roof is water-
cooled. There are various openings in the roof i.e. three for graphite electrode,
one for alloy addition / trimming additions, one for fume exhaust and one for
temperature / oxygen measurement / sampling. Argon gas is purged through
porous plug from bottom of steel ladle. A ladle free board of about 300-400
mm is left from the top of the ladle. Slag carryover in steel from BOF shall be
more than 3kg/tonne of steel.
Electrodes are lowered and an arc is struck between electrode and steel bath.
Heat generation takes place at the slag metal interface. Steel is purged from
bottom by argon continuously even when heating is on. Heating rate of 4-
50C/min. is achieved. Trimming additions are done through Ferro Alloy
Feeding Arrangement (FAFA) system. Wire injection is done through wire
feeder. Auto sampler and temperature and/or oxygen measurement system is
provided for sampling and measurement. Ladle Furnace installation consists
of Treatment Station, Furnace Transformer, FAFA system, Hydraulic System,
capacitor and VCB unit, MCC, water supply facilities, fume exhaust system
and power (HT and LT) supply facilities. Treatment time at LF is 30-35 min.
this depends upon desulphurisation required, rise in temperature and grade of
steel.
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RH Degasser and Ladle Furnace are standard secondary refining units. There
are numerous plants operating in India and abroad. RH Degasser in India is
operating at SMS – II of BSP and LD shop of TISCO. LFs are in operation at
BSP, BSL, RSP, ASP, TISCO, JVSL, Essar Steels among the big integrated
steel plants besides numerous units in secondary steel sector. It may be noted
that SMS – II of BSP has operating experience of LF and RH Degasser and
addition of new units of RH Degasser and LF shall not pose any problem.
Slab Casting Process
Continuous slab casting is a standard practice. Ladle is placed on to turret.
Liquid steel is poured from ladle to tundish and then to water cooled copper
mould. Metal stream falls over false bottom called dummy bar head which is
sealed in mould with asbestos packing on all the four sides. Tundish acts as a
secondary reservoir of metal as well as vessel for quality control of steel. Steel
is partially solidified in mould with thin shell of skin formed around mould.
Mould is oscillating and casting powder is used as lubricant. Below mould is
zero segment (Bender) with no drive. It is provided to give support to strand
for withdrawal. After Bender strand passes through set of rollers called
segments in radial portion. At the end of horizontal strand segment, dummy
bar is separated from strand. Water is sprayed on strand surface along with air
for cooling. Rollers are also water cooled along with frame. Strand is cut at
gas cutting machine into desired length. Cut slabs are marked and sent to yard
or to mills for hot charging. Before metal from one ladle is finished, another
ladle is placed on turret. Turret is rotated and metal from new ladle is cast.
Thus, continuous casting continues one ladle after another. After a series of
heats casting machine is prepared within one hour.
The new caster is to be installed between axis 7 and 9 by the side of existing
slab caster no.1.
Merits:
i) No shutdown of existing caster is required, thus no loss of production.
ii) Online secondary cutting of slabs and direct feeding to reheating
furnace of Plate Mill (warm charging) is possible. This will lead to
saving in energy.
iii) Installation of new slab caster will enable BSP to take UP replacement
of other slab caster and bloom caster with state of art technology
without any production loss.
Demerit:
i) Higher capital cost
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Among all other alternatives, the above was chosen because of its lower
overall costs, possibility to do replacement of existing caster without loss of
production. New location of Slab Caster will also facilitate direct transfer of
hot slabs to reheating furnace of Plate Mill (warm charging).
At present there are five casters in the shop. Caster nos. 1, 2 & 3 are slab
casters, caster no. 4 is a slab cum triple bloom caster (combi-caster) and caster
no. 5 is a four strand bloom caster. As per Corporate Plan 2012, the shop is
envisaged to produce 1.75 Mtpa of high quality slabs and 1.05 Mtpa of high
quality blooms and beam of high quality slabs and 1.05 Mtpa of high quality
blooms and beam blanks. Shop would need at least two modern slab casters
and one modern bloom cum beam blank caster to achieve this production
target.
Benefits from Present Project
To produce slabs of international standard with regard to quality and
dimensions.
To enable upgradation / replacement of existing casters with state of art
caster without loss of production. This will ultimately help in creating high
quality slab casting facility of around 1.75 Mtpa.
To produce and exploit market potential to supply 3,00,000 of API grade
steel and other value added steel grades. Vacuum degassing of steel
through RH Degasser helps to remove dissolved gases like hydrogen,
nitrogen and oxygen which assist formation of inclusion and hydrogen
induced cracking specially in API grade plate steels.
Supply 100% rail steel to Indian Railways through RH Degasser unit
keeping in view future increased demand of rails also.
Creating potential to produce thicker plates of all grades including API
grades in bulk quantity for which BSP is not accepting orders. It may be
noted that SAIL enjoys monopoly in thicker plates in the country. This is
possible by having soft reduction facility in slab caster. Reduction of
thickness in small steps during final solidification is called soft reduction.
Soft reduction is to compensate thermal shrinkage in the final stages of
solidification in order to avoid accumulation of solute enriched liquid. This
will help reduction of segregation in cast slabs and reduce related defects
in plates.
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Additional slabs can be converted to plates at that time in Plate Mill.
Reduction in operating cost due to increased productivity, improvement in
yield, saving in energy consumption etc.
Slab casters are operating at RSP and BSL of SAIL which have been
installed recently with state of art technology. In private sector modern slab
casters are operating at TISCO, JVSL and Essar Steel etc. All these casters
have been installed in nineties. BSP slab casters being the oldest in the
country and of being first generation can not compete with these modern
day casters in terms of quality and productivity.
Financial Analysis and Appraisal of the Project
The total scope of work has been broadly divided into the following main
packages for efficient implementation of the project:
1. Enabling Works Package
2. New Slab Caster
3. New RH Degasser
4. New Ladle Furnace
5. Augmentation of Power Supply for Ladle Furnace
6. Augmentation of Argon Supply
7. 64 T / 48 T EOT Crane
After finalisation of the specifications based on the scope of work tenders for
the project were issued.
Capital Cost Estimates
The basis of the estimate is negotiated L1 prices for the tendered out packages
and estimated cost for the balance facilities.
Necessary provisions have been made in the estimate as per details given
below:
I. Spares: Nil
II. Taxes and duties:
a. Import duty @ 33.4% inclusive of Basic Customs Duty (@ 15%)
and Addl. Duty of Customs (CVD) @ 16% of CIF value of
imported supplies
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b. Income tax, R&D Cess and Educational Cess has been considered
as applicable on imported services.
c. All taxes & duties and freight and insurance applicable on
indigenous portion is included in the firmed-up prices and has been
estimated for balance packages.
III. Erection and Commissioning Charges have been considered as
quoted by the L1 tenderers for firmed-up packages and estimated for
balance packages.
IV. Engg. & Construction including imported Design & Engg. And
Foreign supervision has been considered based on firmed-up prices
for packages finalised.
V. Provision for a total of 300 mandays of training abroad of
Purchaser‟s personnel has been kept based on firmed-up prices.
VI. Provision for Contingency has been kept @ 1.5% on overall basis.
Mode of Financing
The entire capital investment is envisaged to be met through debt-equity in the
ratio of 1:1. Interest on loan has been considered @ 10% per annum. Cost of
capital is also taken to be 10%.
77
Capital Cost Estimate (Based on Negotiated L1 Prices)
FE Parity: 1 Euro = Rs 52.96
(15/07/05) Base Date: 3rd Quarter 2005 All figures in Rs. Crores
Sl. No. Description of Item
Total for all Packages
FC LC Total
1 Design & Engg. 22.24 6.42 28.65
2 Supply of Plant & Eqpt. Incl. Tech Strs 101.8 185.04 286.84
3 Refractories 2.93 5.28 8.21
4 Commissioning Spares 0.11 0.11
5 Civil Works 52.33 52.33
6 Supply of Building Strs. 24.43 24.43
7 Erection of fabricated Bldg. Strs. 3.23 3.23
8 Erection of Refr. Incl. WCT 1.41 1.41
9 Erection & Comm. Of Plant & eqpt, PG 18.05 18.05
10 Foreign Supervision in India 4.45 0 4.45
11 Training Charges 0.67 0.03 0.71
12 OCF, Inland transport, Customs clearance 0 1.47 1.47
13 Marine-cum-erection Insurance 0 1.37 1.37
14 Total Contract Price as quoted 132.09 299.18 431.27
15 Cenvat Credit 24.19 24.19
16 Total Contract Price net of CENVAT 132.09 274.99 407.08
17 Taxes & Duties (Purchaser's Scope)
a) CD @ 15% 15.92 15.92
b) CVD @ 16% 19.53 19.53
c) Income Tax 5.94 5.94
d) R & D Cess @ 5% 1.37 1.37
e) Edu. Cess @ 2% 0.84 0.84
Sub-Total (Purchaser's Scope) 0 43.59 43.59
18 Evaluated Price (before CENVAT) 132.09 342.77 474.86
19 E & C (Owner) 20.53 20.53
20 Contingency @ 1.5% 1.98 5.45 7.43
21 Total Plant Cost 134.07 368.75 502.82
22 IDC 17.94 17.94
23 Capital Cost 134.07 386.69 520.76
Phasing of Expenditure & IDC
Years Plant Cost
Equity 50%
Mkt Loan 50% IDC 10%
Total Fund incl IDC
502.82 251.41 251.41
26.37% 1 132.61 66.31 66.31 3.32 135.93 64.63% 2 319.92 159.96 159.96 14.63 334.55
10% Post
Comm 50.28 25.14 25.14 50.28
78
100% Total 502.82 251.41 251.41 17.94 520.76
Investment Evaluation Criteria
Three steps are involved in the evaluation of an investment:
Estimation of Cash-flows
Estimation of the required rate of return (the opportunity cost of
capital)
Application of a decision rule for making the choice.
Investment Decision Rule
The investment decision rules are referred to as capital budgeting techniques,
or investment criteria. A sound appraisal technique should be used to measure
the economic worth of an investment project. The essential property of a
sound appraisal technique is that it should maximise the shareholders‟ wealth.
A number of investment criteria (or capital budgeting techniques) are in use in
practice and for this project exclusively we will be using Discounted Cash
Flow techniques i.e. Net Present Value (NPV), Internal Rate of Return (IRR)
and Profitability Index (PI).
Net Present Value Method
It is a DCF method that explicitly recognises the time value of money. It
correctly postulates that cash flows arising at different time periods differ in
value and are comparable only when their equivalents – present values – are
found out.
Acceptance Rule:
Accept the project when NPV is positive NPV > 0
Reject the project when NPV is negative NPV < 0
May accept the project when NPV is zero NPV = 0
Internal Rate of Return
The internal rate of return (IRR) method takes into account of the magnitude
and timing of cash flows. The internal rate of return (IRR) is the rate that
equates the investment outlay with the present value of cash inflow received
79
after one period. This also implies that the rate of return is the discount rate
which makes NPV = 0.
Acceptance Rule
The accept–or–reject rule, using the IRR method, is to accept the project if its
internal rate of return is higher than the opportunity cost of capital (r > k). k is
also known as the required rate of return, or cut-off, or hurdle rate. The IRR
acceptance rules are:
Accept the project when r > k
Reject the project when r < k
May accept the project when r = k
Profitability index
Another time-adjusted method of evaluating the investment proposals is the
benefit-cost (B/C) ratio or profitability index (PI). Profitability Index is the
ratio of the present value of cash inflows, at the required rate of return, to the
initial cash outflow of the investment.
PI = (PV of cash inflows / Initial cash outlay)
Acceptance Rule
Accept the project when PI is greater than one PI > 1
Reject the project when PI is less than one PI < 1
May accept the project when PI is equal to one PI = 0
The project with positive NPV will have PI greater than one. PI less than
means that the project‟s NPV is negative.
Accounting Rate of Return Method
The accounting rate of return (ARR), also known as the return on investment
(ROI), uses accounting information to measure the profitability of an
investment. The accounting rate of return is the ratio of the average after tax
profit divided by the average investment. The average investment would be
equal to half of the original investment if it were depreciated constantly.
Alternatively, it can be found out by dividing the total of the investment‟s
book values after depreciation by the life of the project. The accounting rate of
return, thus, is an average rate and can be determined by the following
equation:
80
ARR = Average income / Average investment
Acceptance Rule:
As an accept – or – reject criterion, this method will accept all those projects
whose ARR is higher than the minimum rate established by the management
and reject those projects which have ARR less than the minimum rate. This
method would rank a project as number one if it has highest ARR and lowest
rank would be assigned to the project with lowest ARR.
81
Assumptions for Techno-economics
1 Envisaged production of API Gr X65 Plates 000t 100
2 Envisaged production of API Gr X70 Plates 000t 200
Sub-Total (1+2) 000t 300
3 Quality Extra for API X65 Gr Plates (Mar'05) Rs./t 6000
4 Quality Extra for API X70 Gr Plates (Mar'05) Rs./t 6500
Weighted Avg. Quality Extra for API X65+X70 Rs./t 6333
5 Addl. Cost of production of API Gr. Plates over IS2062 Gr. Rs./t 3778
6 Avg. Net Sales Realisation of CC Slab (last 3 years) Rs./t 15746
7 VC of finished Slab (2004-05 budgeted) Rs./t 8945
8 Contribution from slab (6-7) Rs./t 6801
9 NSR of Plates (IS 2062 Off grade), Rs./t 2002-03 2003-04 2004-05 Avg of 3 yrs.
upto 20 mm 14200 20500 24400 19700
20-40 mm 15400 20667 24400 20156
above 40 mm 15500 20467 24800 20256
Avg. 15033 20544 24533 20037
10 NSR of Plates (IS 2062 Prime Grade) 2002-03 2003-04 2004-05 Avg of 3 yrs.
upto 20 mm 18400 21160 26500 22020
20-40 mm 19200 23800 26500 23167
above 40 mm 19700 23100 27000 23267
Avg. 19100 22687 26667 22818
11 Difference in NSR of Prime Gr. & Off Gr. (9-10) 2781
12 CC Slab Production 187000
13 Equivalent hot metal (@ 1.024t per tonne of
Steel) 191488
14 Hot metal to pig iron Yield 93%
15 Equivalent pig iron production 178084
16 Variable cost of pig iron (2004-05 Std. cost of
BSP) 5904
17 3 yrs Avg. of NSR of pig iron 11390
18 Avg. Contribution from pig iron 5486
19 Loss on account of pig iorn, Rs cr 97.7
2002-03 2003-04 2004-05 Avg of 3 yrs.
NSR of pig iron, Rs/t 7200 10220 16750 11390
82
Gross Margin Calculation Sl. No. Item Unit
Base Case
Proposed Case
A Technical Parameters
1 Gross Crude Steel Production per annum 000t 2,335 2500
2 Gross Slab Production 000t 1340 1507
3 Prime Slab Production 000t 1265 1449
4 Addl. Slab Production 000t 184
5 Production of Plates 000t 1132 1132
6 Reduction in rejection of plates due to casting defects from 4.8% to 1% 000t 27
7 Production of API Gr. X65 / X70 Plates 000t 300
B Benefits Qty (000t)
Rate (Rs/t)
Amount, Rs. Cr
1 Quality Extra from API X65 / 70 Gr. Plates 300 5222 156.67
2 Addl. Contribution from Surplus Slabs 184 6801 125.14
3 Addl. Realisation due to reduction in Off - Gr. Plates 24 2781 6.67
4 Loss of Contribution from pig iron iron eqvt. Of surplus slabs 159 5486 -87.25
Total Benefits 201.23
C Expenditure Qty (000t)
Rate (Rs/t)
Amount, Rs. Cr
1 Addl. Expenditure for Production of API Gr. Steel 300 3125 93.75
2 Repair & Maintenance @ 2% of Cap. Cost 10.06
Total Expenditure 103.81
D GROSS MARGIN (B-C) Rs. Cr 97.42
Financial Analysis
1 Capital Cost Rs crore 520.76
2 Gross Margin Rs crore 97.42
3 Interest on Loan @ 10%
(Debt:Equity – 1:1)
Rs crore 26.04
4 Depreciation @ 5.28% Rs crore 27.50
5 Corporate Tax @ 30.6% on net
profit
Rs crore 13.43
Cash Flow Estimation
Discounted Cash Flow Analysis (Pre-Tax)
Year Out-flow In-flow Corp. Tax Net-flow
1 135.93 -135.93
2 334.55 -334.55
3 50.28 82.81 32.53
4 0.00 87.68 87.68
5 0.00 97.42 97.42
6 0.00 97.42 97.42
7 0.00 97.42 97.42
8 0.00 97.42 97.42
9 0.00 97.42 97.42
10 0.00 97.42 97.42
11 0.00 97.42 97.42
12 0.00 97.42 97.42
13 0.00 97.42 97.42
14 0.00 97.42 97.42
15 0.00 97.42 97.42
16 0.00 97.42 97.42
17 0.00 97.42 97.42
18 0.00 97.42 97.42
19 0.00 97.42 97.42
20 0.00 97.42 97.42
21 0.00 97.42 97.42
22 -26.04 97.42 123.46
NPV (10%) 233.18
IRR 16.46%
PI 1.93
Discounted Cash Flow Analysis (Post-Tax)
Year Out-flow In-flow Corp. Tax Net-flow
1 135.93 -135.93
2 334.55 -334.55
3 50.28 82.81 8.96 20.31
4 0.00 87.68 10.45 77.23
5 0.00 97.42 13.43 83.99
6 0.00 97.42 13.43 83.99
7 0.00 97.42 13.43 83.99
8 0.00 97.42 13.43 83.99
9 0.00 97.42 13.43 83.99
10 0.00 97.42 13.43 83.99
11 0.00 97.42 13.43 83.99
12 0.00 97.42 13.43 83.99
13 0.00 97.42 13.43 83.99
14 0.00 97.42 13.43 83.99
15 0.00 97.42 13.43 83.99
16 0.00 97.42 13.43 83.99
17 0.00 97.42 13.43 83.99
18 0.00 97.42 13.43 83.99
19 0.00 97.42 13.43 83.99
20 0.00 97.42 13.43 83.99
21 0.00 97.42 13.43 83.99
22 -26.04 97.42 13.43 123.46
NPV (10%) 143.28
IRR 12.71%
PI 1.93
Financial Appraisal
1 Capital Cost Rs crore 520.76
2 Gross Margin Rs crore 97.42
3 Interest on Loan @ 10%
(Debt:Equity – 1:1)
Rs crore 26.04
4 Depreciation @ 5.28% Rs crore 27.50
5 Corporate Tax @ 30.6% on net
profit
Rs crore 13.43
6 NVP @ 10% discount rate Rs crore 233.18
7 IRR (Pre-Tax) 16.46%
8 IRR (Post-Tax) 12.71%
9 Profitability Index 1.93
The appraisal of the project has been done using discounted cash flow
techniques i.e. NPV, IRR and Profitability Index (PI) and their values have
been shown in the table above.
NPV accepts a project if its value is positive. The NPV worked out in the
above case gives a positive value and thus is acceptable using this technique.
While using IRR, the acceptance rules says that a project is acceptable if the
internal rate of return is greater than the cost of capital. The cost of capital for
this project is 10% and the IRR that has been calculated is 12.71% (post-tax)
and 16.46% (pre-tax) which is greater than the cost of capital. Thus the project
is acceptable.
Profitability Index is the ratio of the present value of cash inflows, at the
required rate of return, to the initial cash outflow of the investment. A project
will be acceptable if the PI is greater than one and will be rejected if it is less
than one. The above project has a PI of 1.93 and is thus acceptable.
So, financially the project is considered to be viable and cost effective and
therefore is acceptable.
Sensitivity Analysis
The sensitivity analysis has been carried out and IRR for various options is as
follows:
Increase in capital cost by 5%: 12.87%
Decrease in expected Gross Margin by 5%: 12.84%
85
Reduction in production of API grade plates by 20%: 11.70%
Increase in production cost of API grade plates by 10%: 12.81%
86
Findings and Conclusion
1. The estimated cost of critical equipment has witnessed a steep
increase within a relatively short period. It appears that the pricing of
such equipment is complex in nature, having regard to the fact that no
specific (clear) price trend is witnessed in the recent past.
2. The discussions of IFCI, CET and BSP/SAIL reveal that SMS-II has
inherent potential to produce higher tonnage of steel (2.5 Mtpa) vis-à-
vis peak production of 2.335 Mtpa recorded for the year 2004-05.
BSP, however, is experiencing constraints with respect to requisite
casting as well as secondary refinery facilities (RH Degasser, Ladle
Furnace). As a sequel, installation of additional secondary refinery
equipment along with a new slab caster is likely to facilitate in
enhancing the production in SMS-II to the extent of about 2.5 Mtpa.
3. In the past, BSP enjoyed the virtual monopolistic status in respect of
supply of rails to Indian Railways. Of late, the said scenario has
witnessed two-fold change viz. emerging competition from other
producers and Railway‟s insistence of supplying a quality product viz.
processing the rail through RH Degasser facility. The existing RH
Degasser facility has already stretched its operations in as much as,
BSP in the year 2004-05 processed Gross rails aggregating 0.993
Mtpa vis-à-vis the rated capacity at 0.8 Mtpa (utilising VAD for the
purpose of re-heating). Having regard to the business potential in
respect of rails and the Railways (sole customer‟s) insistence of
supplying of specific product characteristic (rails), the augmenting of
existing RH Degasser facility by way of installing of additional RH
Degasser appears to be a step in the right direction. This will facilitate
SAIL to fulfil the quality criteria besides retaining market in this
segment.
4. BSP currently has three casters reportedly about 20 years old,
employing old technological process resulting in inefficiencies in
casting and higher casting defects. The rejection is even higher in
respect of special quality or thick plates leading to inability to produce
value-added steel products to meet the growing demand for the same.
In such scenario, the casters need augmentation, renovation or
replacement. The option of revamping of existing caster vis-à-vis
installation of new slab caster were examined and was concluded that
this proposition is a cost-efficient one and therefore a step in the right
87
direction. The installation of new slab caster would also facilitate BSP
to minimise casting defects and produce value-added / special quality
steel besides ensuring its higher utilisation within overall production
parameters of the unit.
5. The capita cost estimates work out to be Rs. 520.76 cr. The IRR for
the project, based on the profitability projections drawn, works out to
16.46% (pre-tax) and 12.71% (post-tax), which may be considered
reasonable in the current scenario.
The sensitivity scenarios reveal that SAIL should ensure production of value-
added / special steel like API grade as envisaged.
The project has certain other inherent benefits such as saving in operating cost
of slabs, improvement in lining life of BOFs, saving in iron loss, better
recovery of ferro-alloys etc. the same, however, have not been considered for
IRR computation.
The IRR for the proposal is likely to improve in the event SAIL will utilise the
new slab caster to the higher levels of operations than envisaged in the
profitability forecasts. The RH Degasser and Ladle Furnace could also be
utilised at higher levels than projected in the profitability forecasts, in the
event the demand for special grade steel / value-added product emerge in the
near future. In such situation, the IRR could improve further than projected in
the profitability estimates.
88
Bibliography
The above report has been prepared from the following sources of data and
information:
1. Websites
1.1. www.sail.co.in
1.2. www.moneycontrol.com
1.3. www.indiansteelalliance.org
1.4. www.ibef.org
1.5. www.wikipedia.org
1.6. www.tatasteel.com
2. Books
2.1. Financial Management, I M Pandey
2.2. Project Management – Strategic Perspectives, Krishnaphani Kesiraju
3. Other References
3.1. Annual Reports – BSP & SAIL
3.2. Iron & Steel Review
3.3. Customs Handling Manual
