Search:



The Web

Rediff








Home > Business > Special

Why is Orissa attracting steel giants?

Dilip Satpathy | September 21, 2004

A century-and-a-half after the Great American Gold Rush, a similar deluge is taking place on the eastern coast of India. All roads and flights are bringing in dozens of investors into the sleepy state of Orissa. The purpose is the same but the metal is different -- steel.

In the last one year, about 40 proposals poured in for setting up steel plants in the state. They include a projected 44-million tonne capacity build-up, at a massive investment of around Rs 108,000 crore (Rs 1,080 billion). Seen against the country's current 34 million tonne steel making capacity, the figures are mind-boggling.

Of these, five major national and international players alone are pumping in Rs 95,400 crore (Rs 954 billion) to build 32.5 million tonne capacities. The Australian BHP-Billiton, the world's largest mining company, has tied up with Korean steel major Posco to invest Rs 39,000 crore (Rs 390 billion) for a 10 million tonne capacity.

The Tata group's Tata Steel will put up six million tonne (Rs 15,400 crore -- Rs 154 billion), Anil Agarwal's Vedanta Group -- five million tonne (Rs 12,500 crore -- Rs 125 billion), the Ruia's Essar Steel -- four million tonne (Rs 10,000 crore -- Rs 100 billion) and Murugappa group's TI Cycles will invest Rs 6,000 crore (Rs 60 billion) for a 2.5 million tonne capacity.

There's also talk of the $6 billion Japanese conglomerate, Mitsui & Co considering a 5 million tonne steel plant with estimated investments of Rs 12,500 crore.

Says Takao Miyachi, chairman, Mitsui & Co India, "Mitsui is interested in various business opportunities in India but there are no concrete plans at this moment."

It already owns mining leases in Orissa through its Indian subsidiary Sesa Goa (Mitsui has a 51 per cent stake) at Thakurani sector in the Keonjhar district.

And as part of the herd mentality, entrepreneurs of all hues are suddenly taking a shine to steel. Like who? The promoters of Action Shoes, Dora undergarments and Lal Mahal Basmati.

Why this sudden interest in Orissa for steel ventures? For B Muthuraman, managing director, Tata Steel, Orissa is part of the company's expansion plans to reach a 15 million tonne annual capacity by 2010.

"The state provides assured long term reserves of high quality iron ore, surplus and cheap electricity and easy access to major steel consuming markets and raw material sources," he says.

Adds Anil Agarwal, chief executive Vedanta Resources, the holding company of Sterlite Industries, "We already have a substantial alumina project in Orissa and would welcome the opportunity to diversify our portfolio with the addition of iron ore."

With 3,567 million tonne of iron ore reserves, 26.50 per cent of India's reserves are in Orissa. But what puts it ahead of other iron ore rich states like Chhattisgarh, Jharkhand, Karnataka, Goa, Maharashtra, Andhra Pradesh, Kerala, Rajasthan and Tamil Nadu are a host of accompanying advantages.

Orissa has substantial reserves of other minerals which go into steel making, like coal -- 51,571 million tonnes (24.37 per cent of the national deposit), dolomite -- 434 million tonnes (10 per cent) and limestone -- 1,032 million tonnes (1.36 per cent).

"More importantly, we have a transparent policy in allotment of mining leases in the state", says Padmanab Behera, minister steel and mines, Orissa government.

Also, there are abundant water resources, surplus availability of power, a reasonably good road and rail network, an existing port facility at Paradip, two more new ports coming up at Gopalpur and Dhamra, and a comparatively better law and order record.

The state is used to such hype. In the mid-90s, Orissa witnessed a similar rush of investment proposals. About a dozen steel projects were then lined up --Tata Steel and Larsen & Toubro at Gopalpur, and Swaraj Paul's Kalinga Steel at Duburi. But they fizzled out.

An industry department official attributes this to the lack of supporting infrastructure and logistic facilities. He alleges that many promoters had thrown in their hat, hoping to grab some mining lease.

Thanks to a revised mines allotment policy, it is a different picture today. With a focus on captive use and mineral processing, the policy stipulates that an application for allotment of mining lease will be considered after the applicant invests substantially in a value addition project within the state. As per the norm, the lease will be allotted only after the promoter has committed 50 per cent of the proposed investment.

"This clause has helped to weed out non-serious promoters and improved the ratio between proposals and actual implementation," says Priyabrata Patnaik, the dynamic chairman and managing director of Industrial Promotion and Investment Corporation of Orissa (Ipicol).

It is the nodal appraising agency for all new medium and large scale industries in the state. Patnaik claims that Ipicol receives at least one proposal a day. Only six out of the 40 proposals are mega ventures backed by big houses.

The Orissa government has already signed 11 memorandums of understanding (MoUs) over the last one year for medium size projects, with a combined capacity of 4.5 million tonnes at a projected investment of Rs 4,500 crore (Rs billion).

Of this, Rs 500 crore (Rs 5 billion) investment has already been committed by the promoters of four projects -- Aarti Steel (0.5 million tonne), Bhusan Steel and Strips (1.2 million tonnes), SCAW Industries (0.25 million tonne) and SMC Power Generation (0.25 million tonne).

But the big question is: can Orissa support this capacity build up in terms of raw material linkage and infrastructure facilities? "The proposed 40 million tonne steel capacity will require about 1,600 million tonnes of iron ore over the next 25 years. Orissa has more than double that quantity of ore in reserve," reveals Patnaik.

Don A Carroll, the country president of BHP-Billiton is optimistic. "Through scientific mining and beneficiation of low grade ore, the available reserves could be augmented. The actual reserves in Orissa could be almost double the present estimates," he says.

In fact, most of the ore bearing areas are now with the state-owned Orissa Mining Corporation and other private leaseholders. But Patnaik says, that there are plans to offer captive leases from the available free area (about 1,200 million tonne) for the newly proposed industries.

However, steel makers are particularly concerned about the fast depletion of resources through a sharp rise in ore exports. Last fiscal, India exported 5.5 million tonne of ore, a 185 per cent jump over the previous year. And the trigger? A surge in Chinese demand, which accounted for half of India's ore exports.

Now, look at the iron ore exports of the state-owned Orissa Mining Corporation (OMC). In the last five years, it swelled five-fold to touch 5 million tonne last year. Exports now account for over 60 per cent of India's entire iron ore production.

That's because, ore prices are moving up. Even as domestic ore prices have swelled from Rs 793 per to Rs 1,300 per tonne in the last one year, international rates have gone up from Rs 1,567 to Rs 1,600 per tonne.

In such a scenario, steel producers are uncomfortable about the long term supply of the raw material for domestic use. That's why, Tata Steel's Muthuraman says that the government should clamp down on exports.

Meanwhile, the government is reportedly considering doing just that. This is to augment raw material supplies to domestic steel producers at cheaper costs and promote value-added exports like finished steel. Also, there is going to be a likely ban on the export of high grade ore (with an above 64 per cent iron content) soon.

But most stakeholders continue to doubt Orissa's capacity to meet infrastructure challenges. A rough estimate shows, that one million tonne of steel production results in three tonnes of raw material movement. So a 40 million tonne capacity will result in almost 160 million tonnes of raw material and finished goods movement.

"This is a huge challenge," admits S K Sarna, joint managing director of Nilachal Ispat Nigam Ltd.

Then, the production of one tonne of steel requires 100,000 cubic litre of water per day, 800 units of power, 1.6 tonne of coal, 600 kg of coke and 1.6 tonne of iron ore. To transport raw material, a one km rail line or a one km four-lane road costs about Rs 4 crore (Rs 40 million). And the construction of a 20 million tonne handling capacity port means an investment of about Rs 2,000 crore (Rs 20 billion).

It also means developing marshalling yards by the railways, build truck terminals and construct delivery channels for water and power supply at various locations where steel projects are coming up.

"The infrastructure development to support the new capacities alone, in Orissa requires an investment of about Rs 30,000 crore (Rs 300 billion)," says Sarna. This excludes social infrastructure like schools, hospitals and recreation facilities, he adds.

But Chandrasekhar Kumar, managing director of state-owned Industrial Infrastructure Development Corporation (IIDCO) is optimistic.

"We are shortly going to form a special purpose vehicle (SPV) with private sector participation for infrastructure development in Duburi area, an upcoming steel hub," he says.

The Kalinga Nagar at Duburi in Jajpur district is a 12,000-acre complex, where various industries propose to set up a 15 million tonne steel capacity.

The other steel hubs are located in Jharsuguda, Dhenkanal, Sundargarh, Sambalpur, Keonjhar and Cuttack districts. Though IIDCO is primarily engaged in facilitating land allotment, at times, it also helps in infrastructure development.

There is also a proposal to develop few strategic road networks with private participation. Says Kumar, "It is a chicken and egg story. We think that industrial progress will spur infrastructure development in many places."

Does India need such a huge capacity build up? Says Ipicol CMD, Patnaik, "The government's draft steel policy aims to create a 100 million tonne capacity in the country by 2020. This is quite realistic even at a conservative projected gross domestic product growth rate of 6.5 per cent."

The industry is equally upbeat. Arvind Parakh, director, finance, Jindal Stainless Steel, which is investing Rs 7,000 crore (Rs 70 billion) to set up a 1.6 million tonne facility in Orissa, says, "One of the challenges a steel company faces is the level of integration, and therefore it is very important that the manufacturing facility is close to the raw material base."

Even so, the per capita steel consumption in India is 28 kg to 30 kg compared to 350 kg to 400 kg in developed countries. "If India has to stay in the race, our per capita consumption has to increase to at least 150 kg," says Tata Steel's Muthuraman.

But how will Orissa benefit? "Rs 10,000 crore (Rs 100 billion) per annum in revenue," says Patnaik. Every tonne of steel making is estimated to contribute Rs 250 crore (Rs 2.50 billion) annually to the state exchequer. This, besides the direct earning from state imposed sales tax and entry tax, etc, he adds.

Clearly, steel making is once again being bandied as a vehicle for Orissa's industrialisation. A century ago, at the behest of Jamshetji Tata, geologist P N Bose found huge deposits of iron ore in Orissa's Mayurbhanj district, for sourcing raw material for Tata's Jamshedpur plant.

Since then, only two steel facilities have come up in Orissa. Steel Authority of India set up its Rourkela plant in the sixties, and then there is the recently commissioned Nilachal Ispat Nigam.

So will Orissa be second time lucky?

Additional reporting: Mansi Kapur



Article Tools
Email this article
Top emailed links
Print this article
Write us a letter
Discuss this article


Related Stories


Orissa woos big investments

Vedanta to enter steel sector

'No steel price hike till March'



People Who Read This Also Read


Buying a house? Check this out







Powered by

More Specials




Share your comments


 What do you think about the story?




Read what others have to say:


Number of User Comments: 12




Sub: to know the price of raw iron ore per ton

dear sir; i would like to know the pricing cost of raw iron ore per ton producing from orissa state,india.followed by the mines of juda ...


Posted by pyla suresh





Sub: Some Clarifications about source

Refer to Industrial Policy - 2001, To qualify for Mining Lease the Govt has made a distinction between Mega & Non-mega Project. Mega – 3 ...


Posted by Tapash Ranjan Jena





Sub: To see the exact mou between orissa govt. and posco

Sir,I want to read the exact mou signed between orissa govt and Posco.


Posted by lulu rath





Sub: comments

sir, the report coverd major areas and was very usefull but it has no data related to job oppurtunites it will create. this is a ...


Posted by manzil kedia





Sub: Message from Schnck Process India Limited,Kolkata

I want to know the status of Pohang Steel Co.(POSCO). which is proposed to be set up in orissa.


Posted by Abhijit Mukherjee




Disclaimer







Copyright © 2004 rediff.com India Limited. All Rights Reserved.