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Orissa’s mega steel plans falling apart

Orissa’s mega steel plans falling apart
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First Published: Tue, Mar 27 2007. 12 24 AM IST
Updated: Tue, Mar 27 2007. 12 24 AM IST
Even as Prime Minister Manmohan Singh was admonishing steel tycoons to not overlook opportunities within India, one state’s ambitions to become a major steel hub are unravelling.
Orissa, where chief minister Naveen Patnaik has been particularly good at attracting steel plants, has decided to stall new investments from steel companies as disputes over land and lawsuits and counter-claims over mines and ore reserves pile up, according to a senior state official who didn’t want to be named.
That decision comes even as there is growing demand for steel, spurred by infrastructure and real-estate projects all over the country.
At a government steel summit here to discuss the vision and challenges for the industry over the next two decades, the Prime Minister exhorted his audience to not ignore that demand. “India is a land of opportunity,” he said. “Don’t miss the moment.”
Company Investment
Posco India 54,000
Arcelor Mittal 40,000
Tata Steel 15,400
Jindal Steel 13,135
Sterlite Industries 12,500
(in Rs cr)
Singh also said the government would provide more assistance to make their expansion easier.
But an examination of steel deals in Orissa, which has attracted at least 45 pledges to set up plants since 2002, shows the government’s hands are often tied over the very same two issues that are critical to steel investors: land and coal.
In perhaps the most-publicized delay, the efforts of South Korean steel giant Pohang Iron and Steel Co. or Posco, to build a $12 billion steel plant in Orissa—representing the largest single foreign investment in India—have been stalled by its failure to secure a mine lease and land, due to local resistance.
Posco is far from alone.
Of the 45 or so pledges, 24 projects have managed to get off the ground and are in various stages of operations, roughly worth Rs6,000 crore, according to officials in the Industrial Promotion & Investment Corporation of Orissa Ltd. Five projects have already been cancelled or dropped, including those of Tube Investments of India Ltd, AML Steel Ltd, Sunflag Iron & Steel, Agrim Steel Industries and Maharashtra Seamless Ltd.
Meanwhile, last year alone, another six letters of intent were signed between the state government and the private sector, including a Rs40,000 crore investment by Arcelor Mittal—taking the potential investments in the impoverished state to a staggering $41 billion (Rs1.8 lakh crore).
Orissa has four billion tonnes of iron ore reserves, a quarter of the country’s assets, but produces a mere three million tonnes of steel a year. Increasingly, companies are scrambling for access to ore, whose reserves lie across four northern districts of Keonjhar, Sundergarh, Mayurbhanj and Jajpur; nearly 20 of these proposed plants are located in these districts. Attempts to acquire land have led to bloody protests.
Orissa’s first attempt to set up steel projects in the mid-1990s resulted in the acquisition of 13,000 acres of land, but an industrial complex planned in the area of Kalinga Nagar never took off.
So far, about 20,000 acres have already been acquired by the government for industrial development, with a third reserved for the steel sector. This, according to a company executive planning a steel plant, still falls short of the land Orissa has promised to parcel out to each of the 45 or so projects.
An official at Industrial Infrastructure Development Corporation Ltd, the nodal authority for land disbursal in Orissa, won’t say how much land has been allotted to 24 companies, and the 10 companies that have received partial land.
“About eight companies have given their applications for land recently,” said the official who didn’t want to named. That group includes Arcelor Mittal, Uttam Galva Steel, Viraj Steel & Energy Ltd and MGM Steel Ltd.
“We are managing to get iron ore in the open market now because our requirement is low,” said Nitin Johari, chief financial officer of Bhushan Steel & Strips. “But sourcing will be tough when we start full operations.”
Bhushan Steel is setting up a 3.1-million-tonne steel plant in the eastern district of Dhenkanal at a cost of Rs5,200 crore, but Johari’s worries mirror the government’s.
Apart from ending links between steel investments and ore demands, the state-appointed committee, tasked to supervise investments, also sought an “independent assessee” to appraise prospecting licenses of steel companies investing in Orissa, said a senior state official. “The assessee will analyse whether the memorandum holder will get a licence on the basis of the investment made,” he said.
But a government wary of future lawsuits over mines has recommended awarding mining licences for only five companies so far, including Posco, Arcelor-Mittal , Bhushan Steel & Strips, Jindal Steel & Power. At least nine more companies are in line for licences.
The fight is already taking an ugly turn. For instance, there are at least 250 previous mine prospecting claims to Khandadhar mines, while the state government is backing Posco.
At least two companies have initiated legal action over mining rights to Khandadhar and Thakurani, for which Posco has applied for leases to meet the requirements of its proposed plant.
Bhushan Power & Steel, one of the first to sign a letter of intent for a plant in 2002, has taken the government to court, claiming rights over Thakurani mines. The third mine—Outer Melang Toli—that Posco has sought, is similarly riddled with past claims. Even without mines secured, companies are proceeding with their plans because they must invest at least 25% of the total cost to negotiate for mines.
Jindal Steel owner Naveen Jindal said that already the company has invested a quarter of the Rs13,135 crore it had pledged. “We are confident the government will give us our mines,” said Jindal, also a member of Parliament. “People who are are setting up steel plants should be given mines.”
Amid the steel rush, Centre-state rivalries have also flared. Officials on both sides say part of the trouble lies in the 1957 Mines and Minerals Act.
The Act, under review by a committee to study mining reforms, gives the prospector the first right to the mine or any company involved in value addition, or making steel products. That Act applies to many of the parties seeking rights to the mines in question, leaving loopholes for litigation.
“Unless the first-come, first-served rule for prospectors changes, legal battles will continue for years to come,” a steel ministry official said, calling the Act “outdated.”
Some parties are using the language of the Act to stake their claims. Kudremukh Iron Ore Company, under the control of the Union steel ministry, has moved court against the Orissa government for rights to the Khandadhar mines.
Three years ago, Kudremukh had negotiated for a prospecting licence for the Khandadhar mines. It has entered into a “value-addition agreement” with state-owned Kalinga Iron Works and set up a pelletization plant at an estimated cost of Rs7 crore.
“It will be practically impossible to give mining areas to 46 parties,” said Niranjan Patnaik, the opposition Congress party’s leader and a member of the state legislative assembly representing the mineral-rich Ramchandrapur constituency in Keonjhar district. “There aren’t enough reserves. And is the government going to ask the plants to be shut down after 20 years?”
The steel ministry refutes this claim. A senior official, who did not wish to be named, said there is enough iron ore and that an “integrated approach” should be adopted to give all a fair share.
The steel and mines ministries remain divided. The former wants steel companies to get captive mines. The latter wants to open its sector up to specialized mining and exploration companies.
Orissa, at the crossroads of unprecedented global steel consumption and wanting to create opportunity in a state where nearly 39% of people live below the poverty line, sees greater impact—and employment—in parcelling ore to steel companies.
According to a National Council for Applied Economic Research study, the steel sector generates more employment than ore. “We don’t want to be an exporter of iron ores which generates little employment. Instead, our policy focus on steel manufacturing for greater economic impact,” said a state official.
Orissa’s development largely depends on the Posco project, a quarter of the total investment projections.
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First Published: Tue, Mar 27 2007. 12 24 AM IST
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