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Marginal impact for steel cos

Our Bureau

NEW DELHI, Feb. 25

MUCH to the relief of the steel industry, there has only been a marginal increase in freight rates proposed in the Railway Budget. The modest hike in freight rates for coal, raw materials, pig iron and finished steel for steel plants is, therefore, not l ikely to burden the steel companies excessively.

The revenue earnings of the Railways from transportation of coal, raw materials, pig iron and finished steel from steel plants will increase by 6.62 per cent, from Rs. 2,995.17 crores in 1999-2000 to Rs. 3,193.37 crores. Compared to this, the growth in r evenue earnings was as much as 16 per cent last year.

As far as iron ore exports are concerned, it is budgeted that the earnings of the Railways will increase from Rs. 462.57 crores in 1999-2000 to Rs. 511.45 crores in 2000-2001.

The steel sector by itself accounts for 13.53 per cent of the total revenues of the earnings from goods traffic. With the industry on its recovery path in recent months, the Railway Minister felt it prudent not to burden it with `across- the-board hike i n freight rates'.

The only question that remains is whether the steel companies will pass on the increase in transportation costs to the consumers.

Mr. Arvind Pande, Chairman, Steel Authority of India Ltd (SAIL), said, ``We welcome the Rail Budget which is a good exercise, given the current circumstances. Marginal burden of increase in the freight rates should get absorbed as the economy gathers mom entum. We are happy to see the Railway strengthening their infrastructure through higher outlay on track renewal and procurement of additional rolling stock. This will give a fillip to the steel industry.''

In the case of the power sector, the hike in coal freight will marginally impact on the price of power, and, in turn, the state electricity boards (SEBs).

The SEBs will be coughing up around Rs. 386 crores more in 2000-2001 owing to the two per cent hike in coal freight prices, since it translates to a little over one paise rise in the cost of one unit of power (kilowatt hour).

The calculation assumes 70 per cent coal-fired generation in the country; specific consumption of 0.72 kg per unit; average lead distance of around 560 km; and a projected generation of 521 billion units during 2000-2001. The generation projection is bas ed on a seven per cent per annum rise in generation over the 1989-1999 actual generation of 448 billion units. Although marginal, the rise in coal freight fares will abet the penetration of imported coal into the country.

In the case of low sulphur high stock, residual fuel oil, furnace oil and straight run naphtha, a two per cent rise in freight prices has been effected. In case of high speed diesel (HSD), transport on a `train load' basis, the rise has been two per cent , while in the case of `wagon load' transport, the rise has been five per cent.

Except for HSD, all other products are decontrolled and hence, the price hike can be passed on by the public sector oil companies to the consumer. The Government and the oil companies are yet to firm up their position on whether or not to pass on the pri ce rise in petro products to consumers.

Meanwhile, reacting to the average two per cent increase in freight for cement, Mr. R. Parthasarathy, Secretary General, Cement Manufacturers' Association, said, ``Today's announcements as regards the cement industry is a friendly one and is expected to impact in a per bag price by only between Rs. 1-1.50. Overall, we see that there will only be a marginal impact on pricing and it is not expected to appreciably shift the current trend between rail and road transportation for cement.''