Why mega steel projects in India are in limbo
ArcelorMittal and South Korean steel giant POSCO abandoned planned mega projects in India recently. The problem for both was the same - delays in land acquisition and in the allocation of iron ore mines.
Protests against land allocation to POSCO in Orissa's capital Bhubaneswar <em>Photo: Arabinda Mahapatra</em>
Indian projects are one of the several projects for us. If approvals don't come, capital allocation won't follow." Indian- born steel tycoon L.N. Mittal said so in April last year. Fifteen months later, ArcelorMittal, Mittal's company, decided not to proceed with its plans to set up a 12-million tonne steel unit in Orissa. ArcelorMittal joined South Korean steel giant POSCO in abandoning planned mega projects in India. POSCO announced its exit from a six-million tonne steel project in Karnataka a day before Mittal pulled out of the Orissa project. The problem for both was the same - delays in land acquisition and in the allocation of iron ore mines.
"Over the last seven years we have invested considerable resources in this project. However, the delays relating to land acquisition and allocation of captive iron ore blocks mean this project is no longer viable," says Vijay Bhatnagar, CEO of ArcelorMittal for India and China. The company will continue to pursue its two other projects - in Jharkhand and Karnataka. But land acquisition delays have also hampered the progress of ArcelorMittal's proposed 12 million tonne plant in Jharkhand. "The company faced problems in land acquisition at two locations and is currently exploring a third location," says A.P. Singh, Industry Secretary, Jharkhand. "We have allotted them some iron ore mines and water."
Indeed, several mega steel projects are stuck in mineral-rich states such as Orissa and Jharkhand due to identical reasons. These were all expected to expand steel capacity, promote ancillary industries, create employment and spur industrialisation.
ArcelorMittal is one among several companies which signed a pact with the Orissa state government to set up steel projects. The Memorandum of Understan-ding (MoU) with ArcelorMittal in December 2006 entailed investment of Rs 40,000 crore in two phases. In a span of three years beginning 2004, the state signed 10 MoUs for investments worth Rs 172,286 crore to set up 57 million tonnes of steel capacity. Companies that entered into agreements include Tata Steel, Essar Steel, Jindal Steel & Power, Bhushan Steel, Uttam Galva and Welspun. Most of these have not even been able to complete land acquisition. Companies have been forced to start with smaller capacities. Tata Steel is looking to commission the first phase of its six million tonne Kalinganagar project by end of fiscal year 2014/15. POSCO's planned Rs 51,000-crore, 12-million tonne steel plant in Orissa has been delayed by years. Land acquisition for first phase of the project was only recently completed, though the MoU was signed in 2005.
In Jharkhand, Monnet Ispat is considering pulling out of a project for which the MoU was signed in 2003. The company had proposed an investment of Rs 1,400 crore in a 1.5-million tonne steel plant. Some investment proposals from companies such as Bhushan Steel and Ispat Industries (now part of JSW Steel) were cancelled by the state government citing slow progress.
India ranks fourth in steel production after China, Japan and the US. However, it is a laggard when compared with the top three, particularly China. With production of 716 million tonnes in 2012, China accounted for 46 per cent of global steel output. India, with 77 million tonnes, made up just five per cent. India's per-capita steel consumption is 59 kg compared with China's 477 kg. India was on the radar of foreign companies such as ArcelorMittal and POSCO due to its rich resources, cheaper cost of production and a growing consumption base. But, clearly, tardy execution has derailed everything, including many projects by domestic companies.
R.S. Pandey, who served as the country's steel secretary between 2006 and 2008, says the developments are a cause for concern. "These are major investments and if after years of effort they are getting scrapped, it does not augur well for the economy. States should do adequate preparation before inviting investors," he says.
The exits can also be partly attributed to the uncertain and volatile global macroeconomic environment. Global steel demand grew only 2.1 per cent in 2012 compared with 6.2 per cent in 2011. Global steel production inched up 1.2 per cent to 1.54 billion tonnes in 2012, registering the lowest growth of the last four years. Capacity utilisation also suffered and was lower than in 2011. Expansion plans, then, are not a priority for the industry. POSCO India Chairman and Managing Director Yong Won Yoon attributed the exit from the Karnataka project to market conditions along with a significant delay in land acquisition.
Jharkhand's Singh says he is not satisfied with the progress of various projects in the state. "Steel companies are treading cautiously. There is a slowdown in the sector," says Singh.
The good news, however, is that steel giants, including ArcelorMittal and POSCO, have multiple projects in the country. The exit from the troubled one will allow them to focus better on their other ventures.
"Over the last seven years we have invested considerable resources in this project. However, the delays relating to land acquisition and allocation of captive iron ore blocks mean this project is no longer viable," says Vijay Bhatnagar, CEO of ArcelorMittal for India and China. The company will continue to pursue its two other projects - in Jharkhand and Karnataka. But land acquisition delays have also hampered the progress of ArcelorMittal's proposed 12 million tonne plant in Jharkhand. "The company faced problems in land acquisition at two locations and is currently exploring a third location," says A.P. Singh, Industry Secretary, Jharkhand. "We have allotted them some iron ore mines and water."
Indeed, several mega steel projects are stuck in mineral-rich states such as Orissa and Jharkhand due to identical reasons. These were all expected to expand steel capacity, promote ancillary industries, create employment and spur industrialisation.
In Jharkhand, Monnet Ispat is considering pulling out of a project for which the MoU was signed in 2003. The company had proposed an investment of Rs 1,400 crore in a 1.5-million tonne steel plant. Some investment proposals from companies such as Bhushan Steel and Ispat Industries (now part of JSW Steel) were cancelled by the state government citing slow progress.
India ranks fourth in steel production after China, Japan and the US. However, it is a laggard when compared with the top three, particularly China. With production of 716 million tonnes in 2012, China accounted for 46 per cent of global steel output. India, with 77 million tonnes, made up just five per cent. India's per-capita steel consumption is 59 kg compared with China's 477 kg. India was on the radar of foreign companies such as ArcelorMittal and POSCO due to its rich resources, cheaper cost of production and a growing consumption base. But, clearly, tardy execution has derailed everything, including many projects by domestic companies.
R.S. Pandey, who served as the country's steel secretary between 2006 and 2008, says the developments are a cause for concern. "These are major investments and if after years of effort they are getting scrapped, it does not augur well for the economy. States should do adequate preparation before inviting investors," he says.
The projects were expected to expand steel capacity, create employment and spur growth
Jharkhand's Singh says he is not satisfied with the progress of various projects in the state. "Steel companies are treading cautiously. There is a slowdown in the sector," says Singh.
The good news, however, is that steel giants, including ArcelorMittal and POSCO, have multiple projects in the country. The exit from the troubled one will allow them to focus better on their other ventures.
