Dark clouds are hanging over the once thriving steel industry in western UP. The industry, mainly concentrated in Muzaffarnagar as well as Ghaziabad, Saharanpur and Bijnor, essentially caters to Delhi-NCR and Haryana. However, observers say, a sharp hike in power tariff by the state government coupled with an unfriendly industrial policy has now resulted in business moving out from the region to neighbouring states like Uttarakhand and Rajasthan. So much so that a number of units in the area have either shut shop or are facing imminent closure. In particular, the backbone of the industry has developed deep cracks in the last two years. The area's furnace units that churn out ingots, the raw materials used by rolling mills here to make TMT (thermo mechanically treated) bars which are widely used in concrete reinforcement, have seen their annual turnover drop from Rs 3,000 crore to less than Rs 800 crore.
In fact, according to statistics provided by the Association of Steel and Rolling Mills and Furnaces (ASRMF), out of 72 induction furnace units, about 50 have closed down. In Ghaziabad alone, out of 22 furnace units, 18 have been shut. The remaining ones are running at half of their capacities.
When TOI contacted Uttar Pradesh CM Akhlesh Yadav on the issue, he said, "Industry representatives have met me in the past and I have constantly solved their problems. They had come to me for the waiver of entry tax which I allowed. I am willing to meet them again. As far as power tariff is concerned, it was increased after suggestions for doing so came in the House. Even now, there is not much of a difference in the power tariff between UP and other states. Also, industries shift to neighbouring states like Uttarakhand only for a temporary period but they do not sustain there for long."
But distraught industry representatives beg to differ. Satish Goel, president, ASRMF, said, "The basic rate of electricity charges on October 30, 2012 was Rs 3.85 per unit. It was steadily increased and is currently at Rs 6 per unit. Then there is the surcharge on power which is 5.5% extra. On top of it, 7.5% is electricity duty. So, the cumulative figure that we have to shell out crosses Rs 7.5 per unit. This development has increased the cost of production and slashed profit margins."
A much-touted factor for the ill health of the steel industry is tough competition from Uttarakhand and Rajasthan. In Uttarakhand, the cost of production is low as the basic rate of electricity is Rs 3.85 per unit, which is almost half of that of UP. For a period of ten years, excise is zero per cent, whereas in UP it is 12.36%. In Uttarakhand, CST is 1%, whereas in UP it is 2%.
Shashikant Goel, director, Sri Jai Balaji Ispat whose two furnace units are already closed, said, "Because of high cost of production here, 12 induction furnace units have moved to Uttarakhand in the last couple of years."
The development has further impacted the socio economic situation of the region. Sanjay Jain, director of Sarvottam Rolling Mill, said, "Almost 12,000 workers have been laid off in the last three years. In addition, last year's riots also impacted the industry in a negative way. There is rise in unemployment and because of that, law and order has worsened in the region."
Experts say soon, the impact of high power cost will be seen on TMT bars production. The director at Trikoot Iron and Steel Casting Ltd, Vaibhav Goel, said, "The current turnover of 20 rolling mills in the region accounts for an annual sale of Rs 2,200 crores. Now with a sizable number of furnaces having closed, there will soon be dearth of ingots for TMT bar production. At the same time, because of low cost of production, Rajasthan-based industrial units are gradually eating into our major clients in Delhi and NCR. Similarly, Uttarakhand is slowly capturing Haryana. With unavailability of ingots and higher cost of production of TMT bars, it will be difficult to sustain in the market. In Muzaffarnagar alone, seven rolling mills have already discontinued operations."
Sanjay Singh, director, commercial of the UP Power Corporation, though, defended the move to hike power tariffs. "In Uttarakhand, electricity production is hydro based in which variable cost is zero. In UP it is thermal based where variable cost is 60-70 per cent of the cost of electricity production. So there has to be a difference in power tariff. Still if you leave Uttarakhand and Himachal Pradesh, our tariff is still comparable with other states. Even then, if industrialists feel the pinch, there is a provision available to them. They can opt for open access system of purchasing electricity through which they can purchase electricity at a much lower rate for a limited period."
Source: The Times of India