Wanted: Another lease of life
Tata Steel's raw materials edge could be blunted by the demands of its European empire unless it gets hold of new reserves.
For once, technology and financing skills had to be set aside as Tata Steel learnt to talk in Ho, the mother tongue of more than a million tribals in eastern India. When an appeal for land to set up its second project, in Orissa's Kalinganagar, cut little ice with the locals, Tata Steel brought in some of its Ho-speaking workers from the Noamundi mines near the Tatanagar steel plant in Jamshedpur, Jharkhand. That, the company says, turned it from a foe to a friend: it has secured 3,000 of the 3,400 acres allotted to it.
Kalinganagar was one of the projects announced by Tata Steel in the last decade, the others being in Lohandiguda in Chhattisgarh and Saraikela in Jharkhand in 2005, and in Bangladesh in 2004. The aim was to add around 26 million tonnes of capacity to the then level of five million tonnes. But the proposed projects in Chhattisgarh and Jharkhand ran into land acquisition trouble. In 2007, Tata Steel acquired Corus in Britain, to become the world's seventh-largest steelmaker by volume.
With iron ore prices continuing to soar, the Corus acquisition has made it even more imperative to get new mining leases. First, Tata Steel has to repay the huge debt it took on to fund the acquisition. Second, the European business does not have the captive iron ore or coal mines that give the Indian operations its big edge. This cost advantage is keeping the group afloat despite the demand recession in the West.
Managing Director Hemant M. Nerurkar is proud of the progress at Kalinganagar. "When we move to Chhattisgarh next, we will be a lot better prepared," he told BT on a recent visit to the Jamshedpur plant, currently Tata Steel's only steelmaking facility in India (see interview, "People Losing Land Must Get Their Fair Share").
As Nerurkar puts on the regulation helmet and heads out of his office into the plant, he points out that while Tata Steel waits for the new projects to happen, it has managed to squeeze in a blast furnace and steelmaking facilities to increase capacity by around three million tonnes.
"Earlier, steel ingots used to land at this spot," he says, pointing to a structure that once had a steel melting shop and now houses a plant to convert molten iron into crude steel.
The surge in raw material prices over the last decade left steelmakers scrambling to learn a new business model in which the 1990s' concerns over technology and bloated workforce do not figure. Raw material costs are today the make-or-break factor. Malay Mukherjee, Managing Director of Essar Steel, notes that the industry has seen a permanent change in its dynamics. He should know. A former veteran of government-owned Steel Authority of India Ltd or SAIL, Mukherjee joined Lakshmi N. Mittal's global steel empire in 1993 and rose to the board of ArcelorMittal before quitting to join Essar in 2009.
"Raw material costs now account for 70 per cent of total costs, against 20-25 per cent earlier, and the operational costs as a portion of total costs are down from 75-80 per cent to 25-30 per cent," says Mukherjee. So a 10 per cent cut in operational cost reduces the total costs by just 2.5 per cent. But shave 10 per cent off raw material costs, and total costs fall by seven per cent.
Mukherjee says all investments by steelmakers will now go to secure raw material supplies, and there will be little time for process innovations. "Corus is an excellent steelmaker, but the Tatas acquired it at a time when this paradigm shift was shaking up the steel industry.
Corus never had any captive raw material sources. The challenge is to secure it with raw material sources," he says. Tata Steel's Vice Chairman, B. Muthuraman, says: "Tata Steel's philosophy is to have some control over a significant part of its raw material requirements. We will continue to look for sensible acquisitions in raw materials to protect ourselves."
Apart from Noamundi, Tata Steel gets its iron ore from Joda and Khondbond in Orissa. For the Kalinganagar steel plant, Orissa has promised another iron ore mine.
How much of a difference do raw materials make? Plenty. Satish Kumar, an analyst with Standard Chartered Securities in India, notes that Tata Steel, by virtue of owning its raw material sources, achieves an EBITDA - or earnings before interest, tax, depreciation and amortisation - that is two to three times that of global players such as South Korea's Posco and Europe-based ArcelorMittal.
"While Posco or Arcelor would have an EBITDA of $130-140 per tonne of steel they produce, Tata Steel's EBITDA is $400-450 per tonne," says Kumar. At current levels of consumption at Tatanagar, Tata Steel's iron ore reserves will last 20 years.
Kumar says Tata Steel's cost for coking coal is $50-60 a tonne against its global rivals' cost of $210 per tonne. Today, Tata Steel's iron ore mines feed its entire need in India, and it gets 45 per cent of its coking coal internally. Indian steel companies have other advantages - iron ore prices in India are always a bit lower than the import parity prices, and the ban on ore exports from Karnataka has made life easier for steelmakers in India, Kumar says.
Buying iron ore can be 5-15 times as costly as mining your own ore. Tata Steel controls iron reserves of 350-400 million tonnes in its existing leases in India. This is enough to feed its Jamshedpur operations for 20 years. The Corus acquisition has changed the equation: its total annual capacity worldwide has shot up to 28 million tonnes. As a result, the group as a whole has become ore-deficient and lost much of its earlier advantage. That is why it is important for the company to add steelmaking capacity in India linked to captive ore, and also to look overseas for ore reserves to feed the European operations. Hence the rush to secure iron ore leases elsewhere in Jharkhand and in Chhattisgarh.
Nerurkar says the company will try to remain self-sufficient in iron ore in India. "I am sure we will get captive iron ore mine allocations from the state governments. After all, we have invested heavily in the poorest states," he says. Iron ore mining rights are highly valued by the industry. (One of the charges by the Central Bureau of Investigation against Madhu Koda is that Koda asked for a kickback of Rs 150 crore from one such ore supplicant during his term as chief minister of Jharkhand.) Tata Steel denies having anything to do with Koda.
Feeding big brother
However, the company has bigger worries outside India, where it needs to tie up raw materials. Iron ore and coking coal prices have firmed up over the past few months while steel prices in Europe are not likely to go anywhere upwards soon. Coking coal prices are expected to set a record in 2011, with Stanchart predicting $350 a tonne (the earlier record is $300 a tonne). Iron ore prices are expected to touch $200 a tonne.
With no captive minerals and steel prices looking to stay depressed, Tata Steel Europe is in a very difficult spot. London-based Chris Houlden, Principal Consultant for Steel at CRUAnalysis, says the European steel business has low margins and can be a drag on the rest of the company.
"Tata Steel Europe is largely exposed to the sea-borne market for ore and coal. Across Europe, conditions are weak. We expect order books of steelmakers to look a lot better by this time next year. Else, idle capacities will have to close down," he notes. Karl-Ulrich Koehler, the CEO and Managing Director of Tata Steel Europe, is cautious. "We have a strategy at the group level, which involves investing to make us more selfsufficient," he said. "There are too few suppliers in the market at present, but that situation seems set to gradually ease over the next few years" (see interview, ''We are growing and are stronger because of the takeover").
Koehler may sound optimistic, when one looks at forecasts that China will produce a record 674 million tonnes of steel in 2011, stretching iron ore capacities worldwide. This forecast, by an Australian agency, has China importing 629 million tonnes of iron ore to supplement its domestic sources.
Tata Steel has invested in New Millennium Capital Corporation's ore project in Canada, in which it will hold a stake of 80 per cent. Production is expected to start next year. While this investment will provide around four million tonnes of ore a year, Nerurkar indicated that the same group has another asset in which Tata Steel is interested.
Tata Steel has also formed a joint venture with a government agency in the West African nation of Ivory Coast to mine the Mount Nimba iron ore deposits, one of the largest in that continent. For its coal, Tata Steel has acquired a 24 per cent stake in Australia's Riversdale Mining, and 35 per cent in Riversdale Mozambique, with the right to take 40 per cent of its production. A race to take over the company has started with Rio Tinto making a bid and the Tata group, the largest shareholder in Riversdale, mulling a counter bid. Tata Steel has also formed separate ventures with SAIL and NMDC. While the venture with SAIL will be bidding overseas for mining projects, the one with NMDC can have several plays, including an equity tie-up for steel plants in India.
Apart from leading Tata Steel in India and Asia, Nerurkar is also responsible for the group's raw material security. He says: "These sources of iron ore and coal will help our European operations. It will take time to boost the bottom line as we will still have to pay a market price but we will also get dividend payouts from the mining companies."
Muthuraman explains: "Our projects in Mozambique, Australia, Canada and Ivory Coast are meant to serve our European operations. Some of these will fructify in the next two to three years and some will take longer."
Repay loans, get ore
Nerurkar took over as managing director of Tata Steel in 2009, with Muthuraman moving up as non-executive vice-chairman. In his first interview with the print media, Nerurkar comes across as a man in command, as he steers the company through uncharted waters.
Nerurkar will have a stint of just about five years in the hot seat. His predecessor's tenure was eight years, and he will have that much less time to leave his mark on the 103-year-old company.
"We have two tasks: repay our loans taken for the Corus acquisition and invest in Kalinganagar," says Nerurkar. "For that, whatever tonnage I can add from Jamshedpur will aid our bottom line."
Earlier, as we walked out of his office, Nerurkar pointed at the handrails along the stairway and new safety regulations that mandate holding on to them. "Holding on has two purposes - to keep you safe and also keep the handrails clean," he says.
Like the handrails, almost everything has a dual purpose in Tata Steel today. The Corus acquisition makes Tata Steel Group a large player with that much more leverage while buying raw material. It also offers superior technology for the entire group.
Tata Steel is learning and so is Corus. Koehler says: "I am confident that the European operations of Tata Steel have a major contribution to make in technical and operating knowhow for the development of the group as a whole."
Using the European experience, the Jamshedpur hot-strip mill has increased its annual capacity to 4 million tonnes from 2.5 million tonnes and the cold-rolling capacity is up from 1.2 million tonnes to 1.5 million tonnes.
Nerurkar is planning to bring in some higher grades of cold-rolled steel to India from Europe as well as some construction-grade steel from its Thailand unit. What handicaps the Jamshedpur plant is that it is landlocked, unlike, say, rival Essar Steel. Essar has its steel mills and raw materials beneficiation and pelletisation plants on the west coast.
That is one reason Tata Steel abandoned plans to send steel to Europe for finishing. This is also why Kalinganagar, located 100 km from the proposed Dhamra port on the eastern seaboard, is so important.
It will add Indian steel (read profitability) to the balance sheet.
Demand too good to miss
"India is growing both in infrastructure and in consumer products and I do see a 10-12 per cent growth in steel demand per annum, with a little larger growth in longs than in flats," says Muthuraman, referring to structurals such as beams and sheets.
B.N. Singh, the Group CEO of Adhunik Metaliks, cites the government's infrastructure push to back optimistic estimates that India will consume 220 million tonnes of steel a year by 2020. That will need over 600 million tonnes of iron ore.
Singh, who was earlier the CEO of JSW Steel and chairman of the government-owned Rashtriya Ispat Nigam Ltd, says: "At worst it will be 170-180 million tonnes. We are at 60 million tonnes now. There is plenty of room for all Indian companies to invest and grow their production in India, and Tata Steel's strategy to invest in capacity looks good." While all this is true, Tata Steel is caught between its troubles in Europe and the land and lease hurdles before its new projects in India.
Koushik Chatterjee, the group's chief financial officer, says: "We will continue to invest Rs 6,000-8,000 crore annually, across the group in the next few years." The company is also seeking the permission of shareholders to raise capital.
Chatterjee adds: "As part of our financing strategy we will continue to pre-pay and repay debt from surplus cash flows," indicating that the fresh equity, when raised, will be used mainly for investments. How close is Tata Steel to setting up the Kalinganagar plant? "Nothing is expected before another three years," says Kumar of Stanchart.
Author and activist Felix Padel says Kalinganagar has seen human rights violations and the situation is as grim as that of the Vedanta project in Lanjigarh and Niyamgiri. Padel says there has been violence between people who have accepted the rehabilitation proposal and those that have not. Tata Steel declined to comment.
As a company, Tata Steel has seen its conflicts, within and without, and also reconciliations, such as the one last November, when a 92-year-old Russi Mody arrived at the Jamshedpur airport and was greeted by J.J. Irani. In 1993, Mody had quit as chairman and managing director of what was then Tata Iron and Steel Co following a tiff with Ratan Tata, when Tata began to take control of the group. Irani had succeeded Mody. His presence at an Irani family function was dessert for the feast.
Only, the problems facing Nerurkar and Koehler this time are bigger, global and multidimensional.
Kalinganagar was one of the projects announced by Tata Steel in the last decade, the others being in Lohandiguda in Chhattisgarh and Saraikela in Jharkhand in 2005, and in Bangladesh in 2004. The aim was to add around 26 million tonnes of capacity to the then level of five million tonnes. But the proposed projects in Chhattisgarh and Jharkhand ran into land acquisition trouble. In 2007, Tata Steel acquired Corus in Britain, to become the world's seventh-largest steelmaker by volume.
Managing Director Hemant M. Nerurkar is proud of the progress at Kalinganagar. "When we move to Chhattisgarh next, we will be a lot better prepared," he told BT on a recent visit to the Jamshedpur plant, currently Tata Steel's only steelmaking facility in India (see interview, "People Losing Land Must Get Their Fair Share").
As Nerurkar puts on the regulation helmet and heads out of his office into the plant, he points out that while Tata Steel waits for the new projects to happen, it has managed to squeeze in a blast furnace and steelmaking facilities to increase capacity by around three million tonnes.
"Earlier, steel ingots used to land at this spot," he says, pointing to a structure that once had a steel melting shop and now houses a plant to convert molten iron into crude steel.
Malay Mukherjee, MD, Essar Steel
Mukherjee says all investments by steelmakers will now go to secure raw material supplies, and there will be little time for process innovations. "Corus is an excellent steelmaker, but the Tatas acquired it at a time when this paradigm shift was shaking up the steel industry.
| Interview 'People losing land must get their fair share'  Hemant M.Nerurkar The last quarter results were a positive surprise. Your comment. The first reactions were positive, but when people figured we were not doing so well in Europe we got some negative reactions too. But as long as Europe does not record bigger losses we will be fine and in three years our European operations will be as good as any in the world. Demand is an issue in Europe today. How important is the expansion in Jamshedpur for you? In India we are concentrating on a few things. First is modernisation. Our operating profit (EBITDA) is one of the highest and any tonnage we add from India will help our EBITDA. We have two tasks. One is to pay back the loan and the other is to plough back profits into the Orissa project. The Jamshedpur expansion of three million tonnes was a difficult one - this is the first time we expanded the capacity here on this scale. We have always expanded by one million tonne or less. This one was almost like setting up an integrated steel plant - but not in a classical way. It was done in a khichdi (hodge-podge) manner - a bit here and a bit there. Now, on around 1,700 acres we will have 10 million tonnes of steel-making capacity. But after we complete building the capacity we will have to work on streamlining them. It is something our chairman, Mr Ratan Tata, is very keen on. Your new projects in Orissa, Chhattisgarh and Jharkhand have been delayed for years now... That is why we expedited our Jamshedpur expansion. And in Orissa we are almost successful. We were so used to Jamshedpur, where people know us and we take the local acceptance of the Tatas as granted. We took a long time to realise that an orchestrated campaign was being conducted against us in Orissa. First, we did the things the government asked us to do and what the local people asked us to do. But it took us some time to realise that we need to do more - we need to secure the people's future. However good our intentions may be, the person still loses his land. There is no fairness in the land acquisition process. People are emotionally attached to their land and we need to be aware of that. People must get their fair share. When we move to Chhattisgarh for our next project we will be much better prepared. |
Corus never had any captive raw material sources. The challenge is to secure it with raw material sources," he says. Tata Steel's Vice Chairman, B. Muthuraman, says: "Tata Steel's philosophy is to have some control over a significant part of its raw material requirements. We will continue to look for sensible acquisitions in raw materials to protect ourselves."
Apart from Noamundi, Tata Steel gets its iron ore from Joda and Khondbond in Orissa. For the Kalinganagar steel plant, Orissa has promised another iron ore mine.
 Whatever tonnage I can add from Jamshedpur will aid our bottomline Hemant M. Nerurkar, Managing Director, Tata Steel |
"While Posco or Arcelor would have an EBITDA of $130-140 per tonne of steel they produce, Tata Steel's EBITDA is $400-450 per tonne," says Kumar. At current levels of consumption at Tatanagar, Tata Steel's iron ore reserves will last 20 years.
Kumar says Tata Steel's cost for coking coal is $50-60 a tonne against its global rivals' cost of $210 per tonne. Today, Tata Steel's iron ore mines feed its entire need in India, and it gets 45 per cent of its coking coal internally. Indian steel companies have other advantages - iron ore prices in India are always a bit lower than the import parity prices, and the ban on ore exports from Karnataka has made life easier for steelmakers in India, Kumar says.
Buying iron ore can be 5-15 times as costly as mining your own ore. Tata Steel controls iron reserves of 350-400 million tonnes in its existing leases in India. This is enough to feed its Jamshedpur operations for 20 years. The Corus acquisition has changed the equation: its total annual capacity worldwide has shot up to 28 million tonnes. As a result, the group as a whole has become ore-deficient and lost much of its earlier advantage. That is why it is important for the company to add steelmaking capacity in India linked to captive ore, and also to look overseas for ore reserves to feed the European operations. Hence the rush to secure iron ore leases elsewhere in Jharkhand and in Chhattisgarh.
Nerurkar says the company will try to remain self-sufficient in iron ore in India. "I am sure we will get captive iron ore mine allocations from the state governments. After all, we have invested heavily in the poorest states," he says. Iron ore mining rights are highly valued by the industry. (One of the charges by the Central Bureau of Investigation against Madhu Koda is that Koda asked for a kickback of Rs 150 crore from one such ore supplicant during his term as chief minister of Jharkhand.) Tata Steel denies having anything to do with Koda.
Feeding big brother
However, the company has bigger worries outside India, where it needs to tie up raw materials. Iron ore and coking coal prices have firmed up over the past few months while steel prices in Europe are not likely to go anywhere upwards soon. Coking coal prices are expected to set a record in 2011, with Stanchart predicting $350 a tonne (the earlier record is $300 a tonne). Iron ore prices are expected to touch $200 a tonne.
'We are growing and are stronger because of the takeover' Karl-Ulrich Koehler You took up this assignment when Tata Steel Europe was going through a tough time... It was not a hard decision to join one of the world's largest steelmaking groups with a large geographic reach, close connections to global customers, good growth prospects and an exciting future. I joined the company in February and worked with my predecessor, Kirby Adams, who I have known for some time through IISI (now the World Steel Association) and have always considered a friend. Together we pushed through the cost-saving and restructuring measures that have reversed the financial performance in Europe and set up a sound platform for renewed investment in our operational performance. How are you communicating the Tata Steel brand in Europe…Will you retain the Corus brand? First, the Corus brand will gradually disappear altogether. We are introducing the Tata Steel name gradually over a period, in order to minimise cost and disruption of operations. Our employees in Europe, who recognise we are all stronger and growing together because of the takeover, have welcomed the switch to the Tata Steel brand enthusiastically. We have also spoken to all our customers. We know that you will unveil a plan for Tata Steel Europe in three months. What direction will it take or what areas will it work on? It is clear we have to differentiate ourselves through our product offering and customer service and ensure operational excellence. This is why we are introducing our new operating model in Europe. This will optimise the way our manufacturing, supply chain, and sales and marketing functions work together. Do you see any scope for further integration of the operations of Tata Steel India and Tata Steel Europe? Absolutely. A lot of work on this has been going on since the takeover, and this will continue. The integration - the sharing of best practices, technological differentiation and the culture of continuous improvement - has been continuing right through the financial crisis. We will see over the next few years how Tata Steel in Europe will play a major part in optimising how the group takes advantage of its growth opportunities. |
With no captive minerals and steel prices looking to stay depressed, Tata Steel Europe is in a very difficult spot. London-based Chris Houlden, Principal Consultant for Steel at CRUAnalysis, says the European steel business has low margins and can be a drag on the rest of the company.
"Tata Steel Europe is largely exposed to the sea-borne market for ore and coal. Across Europe, conditions are weak. We expect order books of steelmakers to look a lot better by this time next year. Else, idle capacities will have to close down," he notes. Karl-Ulrich Koehler, the CEO and Managing Director of Tata Steel Europe, is cautious. "We have a strategy at the group level, which involves investing to make us more selfsufficient," he said. "There are too few suppliers in the market at present, but that situation seems set to gradually ease over the next few years" (see interview, ''We are growing and are stronger because of the takeover").
Koehler may sound optimistic, when one looks at forecasts that China will produce a record 674 million tonnes of steel in 2011, stretching iron ore capacities worldwide. This forecast, by an Australian agency, has China importing 629 million tonnes of iron ore to supplement its domestic sources.
Tata Steel has invested in New Millennium Capital Corporation's ore project in Canada, in which it will hold a stake of 80 per cent. Production is expected to start next year. While this investment will provide around four million tonnes of ore a year, Nerurkar indicated that the same group has another asset in which Tata Steel is interested.
Tata Steel has also formed a joint venture with a government agency in the West African nation of Ivory Coast to mine the Mount Nimba iron ore deposits, one of the largest in that continent. For its coal, Tata Steel has acquired a 24 per cent stake in Australia's Riversdale Mining, and 35 per cent in Riversdale Mozambique, with the right to take 40 per cent of its production. A race to take over the company has started with Rio Tinto making a bid and the Tata group, the largest shareholder in Riversdale, mulling a counter bid. Tata Steel has also formed separate ventures with SAIL and NMDC. While the venture with SAIL will be bidding overseas for mining projects, the one with NMDC can have several plays, including an equity tie-up for steel plants in India.
Apart from leading Tata Steel in India and Asia, Nerurkar is also responsible for the group's raw material security. He says: "These sources of iron ore and coal will help our European operations. It will take time to boost the bottom line as we will still have to pay a market price but we will also get dividend payouts from the mining companies."
Muthuraman explains: "Our projects in Mozambique, Australia, Canada and Ivory Coast are meant to serve our European operations. Some of these will fructify in the next two to three years and some will take longer."
Repay loans, get ore
Nerurkar took over as managing director of Tata Steel in 2009, with Muthuraman moving up as non-executive vice-chairman. In his first interview with the print media, Nerurkar comes across as a man in command, as he steers the company through uncharted waters.
Nerurkar will have a stint of just about five years in the hot seat. His predecessor's tenure was eight years, and he will have that much less time to leave his mark on the 103-year-old company.
"We have two tasks: repay our loans taken for the Corus acquisition and invest in Kalinganagar," says Nerurkar. "For that, whatever tonnage I can add from Jamshedpur will aid our bottom line."
Earlier, as we walked out of his office, Nerurkar pointed at the handrails along the stairway and new safety regulations that mandate holding on to them. "Holding on has two purposes - to keep you safe and also keep the handrails clean," he says.
Like the handrails, almost everything has a dual purpose in Tata Steel today. The Corus acquisition makes Tata Steel Group a large player with that much more leverage while buying raw material. It also offers superior technology for the entire group.
Tata Steel is learning and so is Corus. Koehler says: "I am confident that the European operations of Tata Steel have a major contribution to make in technical and operating knowhow for the development of the group as a whole."
Using the European experience, the Jamshedpur hot-strip mill has increased its annual capacity to 4 million tonnes from 2.5 million tonnes and the cold-rolling capacity is up from 1.2 million tonnes to 1.5 million tonnes.
Nerurkar is planning to bring in some higher grades of cold-rolled steel to India from Europe as well as some construction-grade steel from its Thailand unit. What handicaps the Jamshedpur plant is that it is landlocked, unlike, say, rival Essar Steel. Essar has its steel mills and raw materials beneficiation and pelletisation plants on the west coast.
That is one reason Tata Steel abandoned plans to send steel to Europe for finishing. This is also why Kalinganagar, located 100 km from the proposed Dhamra port on the eastern seaboard, is so important.
It will add Indian steel (read profitability) to the balance sheet.
Demand too good to miss
"India is growing both in infrastructure and in consumer products and I do see a 10-12 per cent growth in steel demand per annum, with a little larger growth in longs than in flats," says Muthuraman, referring to structurals such as beams and sheets.
B.N. Singh, the Group CEO of Adhunik Metaliks, cites the government's infrastructure push to back optimistic estimates that India will consume 220 million tonnes of steel a year by 2020. That will need over 600 million tonnes of iron ore.
Singh, who was earlier the CEO of JSW Steel and chairman of the government-owned Rashtriya Ispat Nigam Ltd, says: "At worst it will be 170-180 million tonnes. We are at 60 million tonnes now. There is plenty of room for all Indian companies to invest and grow their production in India, and Tata Steel's strategy to invest in capacity looks good." While all this is true, Tata Steel is caught between its troubles in Europe and the land and lease hurdles before its new projects in India.
Koushik Chatterjee, the group's chief financial officer, says: "We will continue to invest Rs 6,000-8,000 crore annually, across the group in the next few years." The company is also seeking the permission of shareholders to raise capital.
Chatterjee adds: "As part of our financing strategy we will continue to pre-pay and repay debt from surplus cash flows," indicating that the fresh equity, when raised, will be used mainly for investments. How close is Tata Steel to setting up the Kalinganagar plant? "Nothing is expected before another three years," says Kumar of Stanchart.
Author and activist Felix Padel says Kalinganagar has seen human rights violations and the situation is as grim as that of the Vedanta project in Lanjigarh and Niyamgiri. Padel says there has been violence between people who have accepted the rehabilitation proposal and those that have not. Tata Steel declined to comment.
As a company, Tata Steel has seen its conflicts, within and without, and also reconciliations, such as the one last November, when a 92-year-old Russi Mody arrived at the Jamshedpur airport and was greeted by J.J. Irani. In 1993, Mody had quit as chairman and managing director of what was then Tata Iron and Steel Co following a tiff with Ratan Tata, when Tata began to take control of the group. Irani had succeeded Mody. His presence at an Irani family function was dessert for the feast.
Only, the problems facing Nerurkar and Koehler this time are bigger, global and multidimensional.
Bait worth the wait Welspun, Vedanta-Sterlite, Navin Jindal's Jindal Steel & Power and ArcelorMittal were reportedly all in the fray. Ispat has a three million tonne steel making unit at Dolvi and cold rolling operations in Nagpur. Apart from ArcelorMittal, Vedanta and Posco too are trying to set up multiple steel plants provided they get some iron ore allocations. Vedanta has already acquired Sesa Goa, an iron ore mining company. These foreign majors have signed multiple MoUs - betting on different states and the ability of the state governments to arrange everything - mining licence, forest clearance, land acquisition, environmental clearance, etc. What are these companies fighting for? India's current proven iron ore reserves are around 8.5 billion tonnes. If we add all the probable and possible (proven, probable, and possible are technical terms in mining parlance indicating the degree of surety of the quantity of reserves underground) reserves of iron ore, it can add up to 17 billion tonnes. Of this, around 80 per cent can be mined. The ore is shared among Orissa, Jharkhand, Goa, Chhattisgarh, Karnataka, Maharashtra, Rajasthan, Kerala, Andhra Pradesh, Tamil Nadu and Assam. Around twoand-a-half to three tonnes of ore is needed to produce a tonne of steel - so, potentially we are looking at five billion tonnes of steel in India. And more iron ore can be located every year- an argument often used by iron ore miners to allow ore exports from India. When a company gets the right to mine this ore, it can squeeze the full advantage of making steel in India. The cost of mining a tonne of ore is often Rs 300-400 while prices of iron ore have been around Rs 2,700-Rs 6,750. So, given the shift in steel making dynamics, having cheap ore at hand is like gold in your pocket. -Suman Layak |
