After struggling to acquire land for a steel plant in Orissa since 2005, Korean steel giant Pohang Iron and Steel Company (Posco) has found a way of gaining a foothold in India. It has agreed in principle to tie up with state-owned Steel Authority of India Ltd for a steel project that is likely to cost upwards of Rs 15,000 crore.
Confirming the development, a Posco spokesperson said: "We are extremely excited about the agreement. Details are being worked out." SAIL declined to comment.
The plant is expected to be located at Bokaro in Jharkhand and the initial capacity under discussion is 3 to 4 million tonnes, though the spokesperson declined to confirm.
Industry sources said the project could be linked to SAIL's proposed 12-million tonne greenfield plant in Bokaro, which would give Posco access to critical iron ore supplies.
Posco had signed an agreement with the Orissa government for a 12-million tonne coastal plant linked to assured iron ore supplies. The iron-ore linkage ran into complications owing to multiple claimants to the Orissa mines, as a result of which the matter is in court.
SAIL, on the other hand, has access to almost all the iron ore from Jharkhand's Chiria mines, which has Asia's largest reserves, following an out-of-court settlement with the Jharkhand government in 2009.
Chiria has around two billion tonne of reserves, of which the Jharkhand government wanted to allot one billion tonne to the private sector. SAIL maintained that it required the entire two billion tonnes.
The matter was fought in court till last year, when SAIL and the Jharkhand government came to a settlement under which almost one billion tonne of reserves was transferred to SAIL and the rest was linked to a12-million tonne greenfield project in the state.
The settlement was a big blow for private companies like ArcelorMittal, JSW Steel, Tata Steel and Essar Steel, all of which were eyeing the reserves for expansion projects. Like Posco, ArcelorMittal signed an agreement with the Jharkhand government in 2005 to set up a mega steel unit that was linked to iron ore supplies.
Typically, a 12-million tonne plant would require 600 million tonnes of iron ore, leaving very little for the private sector, if at all.
Industry sources said if the deal was linked to SAIL's greenfield plant, then Posco would have a head-start over ArcelorMittal.
"Also, it will be easier to acquire land for SAIL, since it is a public sector company and already has a presence in Bokaro," they said. SAIL runs a four million tonne plant that makes flat steel, used in automobiles and consumer durables. The capacity will be ramped up to seven million tonne by 2012 as part of SAIL's corporate plan to enhance capacity to 23 million tonne from the current 13 million tonne.
ArcelorMittal and Posco have been facing inordinate delays in the Orissa projects. Like Posco, ArcelorMittal signed an agreement with the Orissa government in 2006 for a steel plant of similar capacity, after a year's wait at Jharkhand.
Both companies were yet to get land and Posco faced violent agitation from potential land losers to the project.
A Posco spokesperson said, "We hope to get the land soon. Mine allocation is sub-judice."
The delay probably prompted ArcelorMittal to enter the Indian market last September via Mumbai-based cold roller Uttam Galva Steels in which it became a co-promoter.
Earlier this week, Posco laid the foundation stone for a $240 million (or Rs 1,090 crore) galvanising steel project in Maharashtra.
"While we wait for the land in Orissa, we are exploring business opportunities elsewhere," said the Posco spokesperson.
The SAIL-Posco plant will use Posco's patented Finex technology, which uses iron ore fines. Iron ore fines are created as a result of mining larger pieces of ore, and are mostly exported because most domestic producers don't have the technology to use them in the steel-making process. Finex technology production costs are 10 to 15 per cent lower than conventional technologies.
SAIL signed an agreement with Posco in 2007 to establish a strategic alliance for co-operation in a wide range of business and commercial interest areas, which included information-sharing in corporate strategic planning, exchange of engineers, among others. The agreement saw limited progress.
