Cold-rolled grain oriented (CRGO) steel—a key material used in transformers—has always had a very difficult time in India. The complete anarchy in the supply chain of this crucial input is perhaps the darkest face of the otherwise vibrant Indian transformer industry. Last month, the steel ministry stepped in with a sincere attempt to bring about some regularity. By the end of this year, at least as per the new ministerial order (see box), India will not be allowed to import CRGO that does not bear the BIS (Bureau of Indian Standards) mark. This purports to end an era spanning decades that has seen cheap and substandard CRGO unscrupulously finding its way in India-made transformers.

Electrical Monitor got in touch with some leading transformer manufacturers in an attempt to understand the CRGO imbroglio and to assess how practicable this ministerial directive could be, and whether nobility of purpose alone can overpower chronic decadence.

On the face of it, company chiefs surveyed by Electrical Monitor unanimously welcomed the move, echoing satisfaction that a strong measure has at least been proposed—the foreseen and unforeseen implementation hurdles notwithstanding.

CRGO is a specialized form of steel that is globally manufactured by only around eight companies. The technology involved in very sophisticated and remains well guarded by the select manufacturers. India has always been reliant on imported CRGO used in the manufacture of "cores" of power and distribution transformers. Efforts to create domestic manufacturing capacity have yet to fructify.

Till around 20-25 years ago, prime CRGO material was in short supply globally. Due to high import duty then and a precarious balance of payment situation, India began to importing CRGO scrap (non-prime material), recalled R.V. Shah, CMD, High-Volt Electricals Pvt Ltd. Shah explained that transformers were then designed factoring the use of second-grade CRGO. This is perhaps the genesis of how second-grade CRGO entered the Indian transformer industry and grew into becoming part of the Indian transformer's genetic code.

Using scrap CRGO in transformers has a huge negative bearing on the quality of transformers. "India is losing a great deal from the use of defective CRGO," averred W.Z. Khan, Managing Director of east India-based Orissa Engineering Udyog Pvt Ltd. There should be a check on secondary CRGO generated from scrapped transformers, he observed. The use of secondary material is debilitating. A transformer using prime material could last up to 25 years, but one using substandard CRGO could start malfunctioning within four years, according to Anil Aggarwal, President, Indian Transformer Manufacturers' Association.

Even if one admits that scrap CRGO entered the industry for traditional reasons, why is the practice continuing? There is tremendous saving in cost from using scrap CRGO, respondents noted. This so-called cost saving unfortunately fits well in the Indian scheme of affairs where ironically cost is "prime" and quality is "secondary". Today, the rate of prime CRGO is around Rs.120 per kg while scrap CRGO can be available at as low as Rs.50 per kg, noted W.Z. Khan. In concurrence of this was Ashish Das, Managing Director, Stanelec Pvt Ltd who noted that there was no dearth of scrapped material in the country and that transformer manufacturers can get material at very low prices. "It is a only a matter of negotiation," he said.

The lucrative cost-saving and the persisting use of scrapped CRGO gets further credence by the fact that CRGO alone accounts for a sizeable proportion of the total cost of a transformer. K.N. Singhal, Managing Director, Transtron Electricals Pvt Ltd, estimated that CRGO could account for up to 35 per cent of the total cost of a typical distribution transformer. This of course depends on the nature of the transformer. In some cases, CRGO could account for even 50 per cent of the transformer's manufacturing cost.

It may be mentioned here that scrap CRGO is largely used in low-rating distribution transformers, more than in highrating power transformers. India has an inestimable number of distribution transformer manufacturers, many of whom do not even have a formal corporate identity or industry association membership. It is due to this large mass of informal manufacturing setups that scrapped CRGO refuses to dislodge itself from the Indian transformer milieu.

NOT ALL SCRAP IS SECONDARY
While much has been said against the usage of scrap CRGO, it must be clearly understood that not all CRGO imported as scrap is of secondary (inferior) grade. Transformer manufacturers in the organised sector are protesting against the use of inferior CRGO. "Not all imported CRGO is inferior," observed K. N. Singhal of Transtron Electricals. Summarizing the true picture, Amit Garg, Director, Saraf Electricals Pvt Ltd, said "It is not only about secondary material; the quality of imported CRGO is never known." It could so happen that even a well-meaning transformer manufacturer can end using inferior CRGO inadvertently. R.V. Shah of High- Volt Electricals even goes to the extent of observing that a good transformer can even be made out of imported CRGO scrap, providing the material is of good quality. Explaining the intricacies further, Shah said that if a transformer is designed using prime material parameter and one uses inferior CRGO, out of choice or ignorance, the final quality of the transformer will suffer.

What the transformer industry is campaigning against is the anarchy in the entire process of imported CRGO scrap. "One is never sure about the quality of CRGO that is being used. There are no quality standards or governing regulations," Amit Garg observed. He further cautioned that handling scrap CRGO from decommissioned oil-filled transformers could even pose grave health hazards.

The amount of CRGO scrap consumed by the Indian transformer industry is appalling. Anil Aggarwal, President, ITMA said that 70 per cent of the 2.5 lakh tonnes of CRGO that India annually consumes is imported scrap. This brings to light the precariously high number of unscrupulous transformer manufacturers. Industry sources even mention of transformer making units operating out of cowsheds, and that too in the outskirts of mega cities. Little said about their quality standards the better. The number of such informal manufacturing units that continue to operate and even thrive is simply inestimable.

FROM SCRAP TO RICHES
Import of scrap CRGO began as an inevitable activity but now threatens to be an intentional pursuit with vested interests. Just like ships, transformers are also decommissioned world over. The scrap generated from this— mainly copper and CRGO—finds its way to developing Asian countries like India, Pakistan, Bangladesh and Sri Lanka. "India is a graveyard for scrap CRGO," lamented Anil Aggarwal of ITMA. Apart from imports, India also domestically generates scrap CRGO from local decommissioned transformers. Cities and towns across India are bustling with CGRO scrap activity. "There is too much of inferior CRGO scrap available in the country and this is an alarming situation," remarked Ashish Das of Stanelec Pvt Ltd.

Industry is rife with stories about flourishing malpractices in the CRGO scrap trade. Importers of scrap CRGO have even groomed into transformer manufacturers—moving up the value chain in a dubious and disdainful manner. Many of these entities have grown in size over the years as they have been able to find markets for their substandard products. An industry source on the condition of strict anonymity even mentioned of reputed transformer manufacturers floating companies for importing cheap imported scrap and then in turn supplying it to distribution transformer makers in the unorganized sector.

THE NEW REGIME
The biggest objective of the steel ministry order is to regularize the CRGO trade, making it mandatory to use only BIS-certified material. This means that all suppliers will now need BIS certification to deal with CRGO steel. In the present context, it would mean that global suppliers will need to obtain BIS certification before shipping their products to India. How feasible would this be in practice? "It would involve some procedural effort but it should not be difficult," felt Amit Garg of Saraf Electricals Pvt Ltd. He also stated that industry associations like ITMA would be more than happy to ensure that foreign suppliers get their products BIS-marked. "It is all in national interest," said K.N. Singhal from Transtron Electricals. As there are no currently available quality standards for CRGO in India, the new standards that will come in through certification of prime imported CRGO will set the basis for quality standards of locally-produced CRGO steel, whenever it is happens. Amit Garg also observed that at least two international producers including Thyseenkrupp have already begun the process of getting their CRGO steel "marked" with BIS certification.

It is encouraging to observe that foreign suppliers are beginning to take interest in supplying to India as they see a big market for prime CRGO here. Prime quality CRGO comes from countries like USA and Korea; Japanese quality is regarded as the best. Even if the BIS compliance formality involves some effort, it would be worth it, Indian transformer manufacturers widely believe. The Indian transformer industry needs around 2 lakh tonnes of CRGO steel annually. According to Amit Garg, the global capacity of CRGO steel is around 20 lakh tonnes per year, easily fulfilling India's demand. China, till recently, was a big consumer of CRGO steel. Now with growth in China's investment in the power sector slowing down, suppliers could profitably turn to India.

DOMESTIC PRODUCTION OF CRGO STEEL
For decades on end, India has not been able to produce CRGO steel either through indigenous technology or through international technical collaboration. For a country that has a very mature and robust transformer industry, the prolonged absence of indigenous CRGO steel is quite disconcerting. Why is a country like India that can produce the world's largest power transformer unable to make a steel product is an enigma all by itself.

India has made sporadic attempts to produce CRGO steel locally but nothing has worked out. Reliance on imported material grew with the years in keeping with rising transformer production in the country. What has been unfortunate is the proliferation of scrap substandard CRGO in the transformer industry.

In a recent development, public sector entities Steel Authority of India, Bharat Heavy Electricals and Rashtriya Ispat Nigam have decided to set up a joint venture to manufacture special-grade steel including CRGO and CRNGO steel. To be set up with an investment of Rs.3,000 crore, this is expected to be India's first unit for production of CRGO and CRNGO steel. The three companies are believed to be in talks with global suppliers of this technology. In the early 1990s, Steel Authority of India had made an abortive attempt to produce CRGO steel at its Bokaro plant in Jharkhand.

Posco of Korea that is building an integrated steel plant in India has indicated that it could also produce CRGO and CRNGO steel. It may also be mentioned that UK-based Corus Steel, which was acquired by Tata Steel in 2007, is amongst the world's select producers of CRGO steel. In that sense, "India does have the technology," an industry source pointed out.

THE L1 JINX
The procurement policies of government-owned power utilities have always been skewed—dominated by an archaic philosophy of procuring from the bidder quoting the lowest rate. Known as "L1", this practice is turning into an insuperable hurdle for the quality-conscious supplier. As far as distribution transformers are concerned, the very existence of "L1" is proving to be a breeding ground for unscrupulous manufacturers using substandard CRGO steel. "No manufacturer using prime material can ever compete with suppliers that use secondary CRGO," averred W.Z. Khan of Orissa Engineering Udyog. Government utilities, hopelessly bound by the "L1" criteria, are fully cognizant of the quality that can be expected out of the transformers sourced from L1 suppliers. It is a systemic flaw, industry sources said. No power utility wants to proactively depart from the L1 methodology, fearing any untoward action by the Central Vigilance Commission, an industry player observed. The vicious cycle has to be broken somewhere; bringing about drastic regulation in the CRGO steel supply chain through the steel ministry quality control order could be a very useful starting point.

WHAT IS THE WAY AHEAD?
All quality-conscious transformer manufacturers unanimously agree that the steel ministry's quality order must be implemented in spirit. Usage of secondary CRGO is not only resulting in transformers becoming substandard, its effects can atrophy the entire power chain. As Amit Garg of Saraf Electricals explained, a sub-optimal transformer can result in significant inefficiencies in the power transmission and distribution activity. Allowing inferior transformers to be manufactured and pressed in operation militates against the investment made in creating new power generation capacity. The cost-saving in using secondary CRGO could be to the order of 20 per cent of the total cost, but the loss of having such transformers in the power grid is far higher, he noted.

There is another important dimension of why quality certification of CRGO steel should be enforced. The Bureau of Energy Efficiency (BEE) has made it mandatory for distribution transformers to have a minimum one-star rating. Currently, there is no way of knowing the quality of imported CRGO steel scrap. This will introduce difficulties in the type-testing of distribution transformers as the quality of CRGO steel used is directly related to the transformer's efficiency. Once BIS-marked material is made mandatory, it will not only ensure that prime material finds its way into Indian transformers, even the typetesting by BEE would be a more purposeful exercise.

What is secretly feared is the lobbying that would go against the order. The statistics are very compelling. Given that only 30 per cent of CRGO steel used in Indian transformers is of prime quality, those supporting the order form only a minority. The pressure exerted by unscrupulous players in the CRGO scrap trade therefore cannot be underestimated. It would need enormous political will for the quality control order to be enforced. Conscientious transformer players, despite their lurking apprehensions, choose to be optimistic. The industry has waited for long years in the hope that regulation prevails over anarchy. The steel ministry's quality control order might well be the positive transformation that the Indian transformer industry has long desired and always deserved.

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