ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Bias for Higher Selling Prices

Bias for Higher Selling Prices Hansavivek INDIAN ALUMINIUM (INDAL) expects to complete soon the expansion of its rolling mill at Taloja which will make it one of the most modern mills in Asia, Modernisation of Belur mill has already been completed. The two mills have been designed to complement each other in regard to geographical markets and product output. Together they will significantly increase the range of rolled products manufactured in the country. Development of bauxite mines, at Kasarsada, continued during 1982, Ingot production in the year amounted to 70,252 tonnes, as against 87,492 tonnes in the previous year. The company's smelters and alumina plants operated at high levels of efficiency, despite unfavourable situation in power supply. At Hirakud, where the smelter was shut down for three months, average power cut was 61 per cent. At Belgaum, load shedding and frequent fluctuations in supply resulted in an average power cut of almost 50 per cent. At the Alupuram smelter, continuous power was available from January through November, but a 20 per cent cut was imposed in December for the first time in many years. In April, the Orissa State Electricity Board increased power tariff, applicable to Hirakud smelter, by almost 16 per cent. Since the beginning of 1983, the power situation at all three smelters has deteriorated further. Smelters are thus currently operating at below 30 per cent capacity. In spite of the unscheduled and erratic power cuts at the rolling mills at Taloja and Belur, both plants operated at high levels of capacity with total output of rolled products including foil-stock amounting to 32,445 tonnes. Total production of semi-fabricated products in all forms was 36,536 tonnes. Net sales revenue amounted to Rs 171 crore, against Rs 149 crore, and gross profit was Rs 13.85 crore, against Rs 11.70 crore. With both depreciation and taxation requiring more, net profit turned out to be a shade lower at Rs 4.37 crore (Rs 4.43 crore). It may be pointed out that the net profit of 1981 included a credit of Rs 1.27 crore, relating to write-back of certain provisions for cess made in prior years. Dividend has been, lowered from 13.5 per cent to 12 per cent, and is covered 1.14 times against 1.10 times previously. The difficulties experienced in the smelter division were partly offset by the company's strong position in the field of aluminium semi-fabricated products, in which it has been a leader in India for many years.' Export sales of alumina and aluminium products rose from Rs 2.4 crore to Rs 8.4 crore. The directors say that while increase in retention prices in December 1981 made an important contribution to working results, return on capital employed remains seriously low and inadequate,. If this situation continues, the industry will have the greatest difficulty in generating sufficient funds even for financing its normal capital replacements let alone being able to contribute cash to its much needed modernisation and expansion programmes, During the latter part of 1982, the Bureau of Industrial Cost and Prices (BICP) carried out a study of the aluminium smelting industry. In its submission to BICP the company made two proposals. The company suggested that retention prices should be automatically adjusted for increases in costs of those inputs as are supplied by government companies or other government bodies and whose prices can be easily verified by BICP, Secondly, the company proposed that, in its calculations for determining reten- tion prices, BICP should use a depreciation component derived from replacement cost of equipment and not as at present from the historical cost to the purchaser. Continued employment of historical depreciation in these calculations makes erosion of real capital a certainty. Indal also believes that the regulation levy or retention price system of subsidising those smelters, which the government considers to be high-cost ones, has tended over the years to push up the selling prices of ingots and semi-fabricated products. Indeed, the system's bias is not to restrain selling prices but to raise them.

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