/-i 7/ IIV-> F117 PRD APPENDIX 4 L-172- RESTRICTED Public Disclosure Authorized i his report is restricted to use within the Bank. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized FILECOPY TECHNICAL REPORT ON THE IISCO-SCOB IRON AND STEEL PROJECT IN Public Disclosure Authorized INDIA December 4, 1952 Public Disclosure Authorized Loan Department Rate of Exchange of Indian Currency 1 Indian rupee a US $0.21 1 US dollar * Rs. 4.762 1 lakh of ruJees . US $21,000 (Rs. 100,000) 1 crore of rupees . US $2,100,000 (Rs. 10,000,000) TECHNICALREPORT ON IISCO-SCOB IRON AND STEEL PROJECT I N D I A Page I. Purpose and Scope of Report 1 II. India's Iron and Steel Program 1 III. The Borrower 2 IV. Description of the Project 3 V. Raw Materials 5 VI. Transport 6 VII. Power 7 VIII. Market 7 IX. Estimated Cost of Construction 9 X. Estimates of Cost of Production 9 XI. Schedule of Constructionand Disbursement1R XII. MHethod of Financing 11 XIII, Justificationof the Project 19 XIV. Conclusions 20 TECHNICALREPORT ON IISCO-SCOB IRON AND STEEL PROJECT I N D I A I. Purpose and Scope of Report 1. In June, 1952, the Bank sent a llissionto India to examine the problems connectedwith the proposed expansion of the steel industry and to report on the specific projects as the basis for a possible loan. The llissionstudied: (a) the need for expansion of Indiats iron and steel industry; (b) the best methods of ac'omplishingthis expansion; and (c) the extent to which Bank financingmight be required. 2. In the course of its investigations,the PMIissiondiscussed India's iron and steel problems with Government officials, officers of steel com- panies and others. Miethodsof financing the overall and individual programs were also explored. II. India's Iron and Steel Program 3. The producers of iron and steel in India, in the order of their 1951 production,are: Finished Pig Steel 1/ Iron 1/ The Tata Iron and Steel Company, Ltd. kTons) (Tatas) 793,000 _ Indian Iron and Steel Company, Ltd. (IISCO) 2/ - 640o,ooo Steel Corporationof Bengal, Ltd. (SCOB)2/ 254,ooo - M,ysoreIron and Steel Wlorks 29,000 9,000 4. The overall industry also includes about 25 "Re-follers",wvhose aggregate primary production is small. 5. The plant of the Tata Iron and Steel Company, Limited is located at Jamshedpur,about 150 miles from Calcutta. This is the largest inte- 1/ All tons in this report are 2,240 pounds. 2/ Of the iron production shown for IISCO, 330,000 tons were supplied to SCOB for steel making. -2- grated steel mill in India and makes a broad range of iron and steel pro- ducts* The plant, in maintaining maximum production during the war, suffered greatly through lack of proper maintenance. Tatas, now that material is available,have starteda 7-yearprogram primarily of modernization,al- thoughthey are addingto plant capacitywhere possible. Tatastprogram, when completed, is estimated to increase production from 750,000 to 931,000 tons of finished steel products per year, The Governmentrequested Tatas, if possible, to expedite their program. Since the program was being financed from earnings, Tatas was unableto c?ply with the Government's request without an increase in the retention - price of steel. 6. Since July 1, 1952, the Government increased the consumer price of steel (insteadof the retentionprice) by Rs. 100 per ton for the purpose of makingsufficient funds availablein the EqualizationFund to finance India'ssteel expansionprogram. Becauseof the Government'saction in raisingthe price of steel,Tatas is now in a positionto obtainadvances from the EqualizationFund which the Governmentof India has offeredto them, and to acceleratetheir expansionprograms 7. MysoreIron and SteelWorks wrasfound to have its expansionpro- gram alreadyunder way with the aid of Governmentfinancing. Any expansion of the "Re-rollers"could be financedby ordinarydomestic means. 8. The IISCO-SCOBprogram presented, in the Ilission'sview, the most favorablepossibility for rapid and economicexpansion of India'siron and steel capacity. Accordingly,this reportis limitedto the projected expansionof IISCO-SCOB. III. The Borrower 9. IISCO-SCOBare physicallyintegrated; but, they are, at present, legallyand financiallyindependent corporate entities. However,under the provisionsof the Iron and Steel CompaniesAmalgamation Ordinance, 1952, the two companieswill be amalgamatedas of January1, 1953 by the transferof the undertaking,assets and liabilitiesof SCOB to IISCOwhich will then carry on the combined undertaking; SCOBwill then cease to exist and the loan is proposedto be made to IISCO as the survivingcom- pany. This mergerhas been approvedby the shareholdersof both companies. 10. IISCO and SCOB togetherconstitute the secondlargest steel producerin India. SCOBtspresent annual steel capacity is about 25% of Indiaastotal output. IISCO producesabout 64o,000 tons of iron annually, or about43% of India'stotal production. 11. IISCO-SCOBis located in the general area of Burnpur, near Calcutta. The two companiesbesides being physicallyintegrated are furtherinter- lockedby havingcommon managing agents (IMlartin Burn, Ltd. of Calcutta), by a profit-sharingagreement whereby IISCC receives20% of the net profits of SCOB, and by IISCO#sownership of about 30% of the outstandingshares of SCOB. 1/ See Paragraph 39, page 12 -3- 12. IISCO ovms and operatestwo plants. The oldest,established at Kulti in 1874, is used exclusively for the manufacture of foundry iron. The main plant at Burnpur was constructed in 1919 and is used primarily in supplying hot metal to SCOBfor the making of steel. About half the iron output of the tvwo Kulti blast furnaces supplies its own foundry re- quirements and the remainder is produced for sale. 13. IISCOts main works at Burnpur, consisting of two blast furnaces, coke ovensand othernecessary auxiliaries, supply hot iron to SCOBunder an agreementbetween the two companieson a cost plus profit-sharingbasis, Iron not neededby SCOB is availablefor sale. IISCOalso, under the same agreement,furnishes SCOB all utilityand other servicerequirements. 14. IISCO also owns and operates threecollieries and two iron ore mines. 15. SCOB, organizedin 1937 by the managingagents of IISCO,started productionof steelin 1939, Its pIant was initiallylaid out for an ultimatecapacity through expansion of about 1 million tons per year. Pro- ductionat the presenttime is about 350,000tons. The SCOB plant con- sists of a duplexmelting shop, a bloomingmill, structural,rail, merchant and sheetmills, and a galvanizingplant. 16. The directorsof IISCO-SCOB'smanaging agency are men of wide experiencein their respectivefields. The presentworks managementis also well qualifiedand no additionalkey personnelwould be requiredto operatethe expandedfacilities. 17. Both IISCOand SCOB show a sound financial condition. 1I\hile the ratio of debt to equityin IISCO'spresent capitalization is somewhat above average,SCOB is more conservativein this respect. Summaryearn- ings and balancesheets for IISCO and SCOB are given in SchedulesIII and XIII. IV. Descri2tionof the Project 18. The projectunder consideration is one of major expansionof the Burnpurworks and modernizationof Kulti. The projectis designedto increaseannual iron productionfrom about 640,000to 1,400,000tons (400,000 tons being for sale), and finished steel from about 350,000 to 700,000 tons per year as shown in the following table: Products for Sale (Tousands of Tons) 1953 1957 FiniiThe;T Finished Iron Steel Iron Steel Burnpur orks 60 350 300 700 Kulti -orks 100 - 1.0 - IISCO-SCOB Total 160 350 400 700 19. The additional facilitiesneeded by IISCO-SCOBto increase their iron and steel production by the proposed amount are as follows: Burnpur ;orks (a) Coke Ovens New coke ovens, increasingpresent output by 115%, would consist of t-iobatteries of seventy-eightovens each iath one battery replacing a 40-oven battery vwhichhas been in service since 1929. All ovens would be arranged to use blast furnace gas. The by-products plant would be corres- pondingly increa-sedto serve the new ovens. (b) Blast Furnaces The number of blast furnaces would be doubled by the addition of two units, each having a daily output of 1,200 tons of iron. There also would be included the necessary new stoves, steam-drivenblowers, and gas cleaning equip- ment. (c) Duplex Converter House The present building would be extended and equipped for the installation of a third 25-ton (per charge) acid- lined converter thereby increasing converter capacity by 50%. (d) Steel Making Shop The present steel making capacity would be increased by a second melting shop consisting of two 240-ton (per tap) tilting basic open hearth furnaces. This would require a new building equipped laiththe necessary cranes, ladles, and scrap cars. (e) Additions to Steel Rolling Sills The number of soaking pits would be increased from 8 to 11. The finishing departments of both the 34" and 18" mills wrould be extended to handle additional tonnages, (f) Services Ancillary services such as water, gas, power and steam would be increased to serve the plant's additional facilities. Kulti _.orks The Kulti furnaces are very high cost producers and, unless modernized, vwould have to be abandoned. hiodernization would con- sist of (1) scrapping of the existing coke ovens (coke in the future would come fron Burnpur); (2) installationof gas cleaning equipment; (3) installation of a 5,000 Kw. steam turbine generator to permit the utilization of waste blast furnace gas as fuel. -5- 20. The InternationalConstruction Company, Ltd., of London, the Company's consulting engineers,have completed all of the necessarypre- liminary engineeringon the project and are prepared to proceed immediately with detail design and procurement. V. Raw M1aterials 21. India is rich in the necessary raw materials for the making of steel. The proximity of these materials makes the assembly costs on a ton- mile basis among the lowest in any steel producing country, These marerials are also of excellent quality. The iron ore carries an especially high iron content averaging about 60% as mined.