SAIL plans $10 billion overseas expansion

SAIL plans $10 billion overseas expansion

New Delhi: Steel Authority of India Ltd (SAIL) plans to set up small plants in Oman, Indonesia and Mongolia that will use locally available raw materials to manufacture the alloy and help the state-owned firm tap the local markets, in a plan that calls for almost $10 billion (Rs 45,000 crore) of investment.

SAIL will form joint ventures to set up the three plants, which will produce 3 million tonnes (mt) of steel each, chairman C.S. Verma said.

“A 1 mt capacity requires an investment of 5,000 crore," he said. “We have got the invitation from the government of Oman. We plan to put up a blast furnace there. There is enough demand in Oman. Our precondition is that we should get the land and the desired inputs."

While the Indonesian and Mongolian facilities will use coal as fuel, the plant in Oman will use gas.

Energy accounts for about one-fifth of the total cost of producing steel, according to the American Iron and Steel Institute.

While the Indian government has allocated gas to priority sectors such as fertilizer, liquefied petroleum gas, steel, petrochemical plants and city gas distribution companies and refineries, there is not enough being produced in the country to meet the demands of a growing economy.

The total supply of natural gas in India is around 167.80 million standard cu. m per day (mscmd), against a demand of 220 mscmd. The gas availability is projected to be around 202.97 mscmd in 2011-12. Gas supplies through long-term contracts are not available because global demand exceeds supply.

Oman is among the few West Asian energy producers that are engaged in the India’s energy sector. Oman Oil Co., owned by the Oman government, is a partner of India’s Bharat Petroleum Corp. Ltd in the 6 mt per annum Bina oil refinery in Madhya Pradesh.

“The possibility of SAIL setting up a plant in Oman looks attractive, as it will be a gas-based plant. This is because the landed cost of gas in Oman is nearly a fifth that of India," said Chintan Mehta, analyst, Sunidhi Securities and Finance Ltd, Mumbai.

Mehta said SAIL is yet to disclose the cost structure of its proposed operations in Oman, without which judging the viability of its plans is difficult. “SAIL has been struggling both with the cost of coking coal and with rising labour costs. If, therefore, it can get going on a gas-based plant, the company can solve at least one part of its problems," he added.

The proposed coking coal-based project in Mongolia, he said, looks far more promising. “This is because SAIL is used to coking coal technology, which is used in all its current plants."

SAIL has also inked a memorandum of understanding with Indonesia, under which it aims to develop mineral deposits, set up mineral processing facility, steel plant and required infrastructure in the province of Central Kalimantan.

India is the fifth largest crude steel producer in the world and the largest producer of sponge iron. SAIL, the country’s second largest producer of steel, has a hot metal production capacity of 13.84 mt, which it plans to raise to 60 mt by 2020. The company has also proposed 18,000 crore initial public offering, with the government receiving 50% of the proceeds.