The only silver lining is that we can, unlike power, import huge quantities of steel.
Power is in a real crisis. Despite all governments paying lip service, the 8th, 9th and 10th Plan targets fell short by about 50 per cent in terms of real capacity addition. For the 11th Plan, we are going to exceed the earlier shortfalls, since the target is higher and implementation ability further abated. We planned five ultra-mega power projects (UMPPs) of 4,000 Mw each to meet the huge target. To date, only one, namely Mundra in Gujarat, sponsored by the Tata group, has completed financing and is under construction. The next two projects, at Sasan in MP and Krishnaptnam in AP, both awarded to the Reliance Anil Dhirubhai Ambani group, are under appraisal by financing agencies for possible support. Disappointed by the slow progress perhaps, the bidding for the last two UMPPs has been indefinitely postponed by the government. No mid-point track changes can solve the problem.
Power reforms started in 1991 with the specific aim of increasing private share in the sector. After more than 15 years of reforms, this share remains less than 10 per cent. On the other hand, the private sector share in telecom has gone up to 70 per cent from a mere 10 per cent, during the last five years — leading to an over-achievement of target by 300 per cent. The telecom sector facilitated private sector entry and a level-playing field. This needs to be done in power and also in the steel sector, which is fast moving into a big crisis.
The National Steel Policy, formulated in November 2005, aims at more than doubling steel production by 2010 from 38 million tonnes in 2005. However, due to our inability to start even a single plant in the last few decades, steel production increased only by 5 per cent per annum in the last few years, and to meet the growing demand, the import of finished steel products increased by 15 per cent.
At the present rate of growth, one shudders to think India would have to import nearly 50 million tonnes of steel in the next couple of years at a whopping import bill to the tune of $40 billion per annum. The end result, tragically, would be that India, a country that is the cheapest producer of steel in the world, would become an expensive importer despite having the wherewithal of domestic production.
We have companies in India or of Indians, who, visualising the increase in steel requirement in the world, are investing in steel capacities elsewhere since they see no possibilities of closing projects in India — land acquisition, forest clearance, allocation of mines, water linkages etc taking more than 10 years each at the minimum. Examples are ArcelorMittal, Tata Corus, Essar and Posco (Korean firm wanting to set up a plant in India). It is surprising that though we have the best steel entrepreneurs in the world including Jindal, and of course, SAIL, we have not been able to start one greenfield plant in the last many decades. We are merrily exporting iron ore, capital and the brightest entrepreneurs out of this country, perhaps to set up plants in other countries, to import huge quantities of expensive steel later.
What is the remedy? Obviously, to meet huge shortages we must set up large-capacity steel plants at a single location. I have looked at the 14 steel plants in the world with an existing or under-execution capacity of around 10 million tonnes per annum (MTPA). These plants are Bao Steel, Anshan Steel, Wuhan Iron and Steel JV, Wuhan Iron and Steel Corporation, Maanshan Iron and Steel Company and Tangshan Iron and Steel Corporation in China; Nippon Steel Kimitsu and Nippon Oita in Japan; Pohang Steel Works and Gwangyang Steel Works in South Korea; China Steel Corporation of Taiwan; Severstal, NLMK Steel Works, Mangitogorsk Iron and Steel Works in Russia; ArcelorMittal in Ukraine; Thyssenkrupp in Germany; Ruva Group in Italy; and Tata Steel, Jamshedpur, and JSW Steel, Vijay Nagar in India.
One feature common to all these plants, with one exception, is that they were set up with active government support and investment. The government acquired land, gave clearance, and often put in capital for these plants. The solitary exception to this is Tata Steel. The plant was neither supported by British India nor socialist India (there were threats of nationalisation), and is not being supported even today. The Tatas want to start four greenfield plants and are not getting any clearance or grant of mining leases. It is for this lack of support that the Tatas will take 100 years to reach a capacity of 10 million tonnes in Jamshedpur and would perhaps not be able to start any other plant despite having the expertise, capital and wherewithal to put up steel plants. Incidentally, they are also the cheapest producers of steel in the world. All the other 13 plants took only about 10 years in reaching a capacity of around 10 million tonnes due to government support. It is worth recalling here that even the Jindal plant was started by the government. When the Jindals took over, the land and linkages were fully available. Only the plant had not started construction even after 35 years of the company being formed.
Today, even SAIL has not been able to start a greenfield plant. The only hope is Vizag expanding from 3.2 MTPA to 10 MTPA. Bokaro, with present linkages, can go up from 4 MTPA to 10 MTPA, but an expansion project is not even in sight.
There is enough land, water, iron ore (more than 60 per cent is being exported every year despite India having the lowest per capita reserves amongst all iron ore-exporting countries), non-coking coal and entrepreneurial capacity, but due to the inability of the entrepreneurs or of the state to obtain land, water linkages, forest clearances and iron ore mines for steel plants, we are fast moving towards a steel sector akin to the power sector, which will have huge shortages. The only silver lining is that unlike power, we can import huge quantities of steel, manufactured abroad perhaps by Indian entrepreneurs, of course at prohibitively high prices. Later, however, this would also let indigenous steel producers set high prices too, in the name of import parity prices in a globalised world. There can be no bigger crisis.
6 months ago