In an attempt to prop up the investment climate in the manufacturing sector, the government proposes to ask public sector undertakings such as SAIL, RINL, MOIL, NMDC and KIOCL to forge alliances with state governments and their enterprises to set up special purpose vehicles (SPVs) for putting up greenfield steel projects in the country and boost demand through aggressive marketing.
The proposal is aimed at bringing back investor interest in the steel sector, which has been in a slow lane owing to sluggish market conditions, tight liquidity and slow pace of statutory clearances.
While steel demand and prices remain flat, no new greenfield steel manufacturing facility has come up in the country. Only a few brownfield capacity projects have come up while new projects are progressing slowly.
The proposed public-public tieups are expected help the government realise its goal of taking up metal production to over 300 million tonnes per annum (mtpa) over the next 15-20 years with a total investment of close to Rs 10,000,00 crore.
Finished steel production in the country now stands at 26 mtpa. While PSU ventures would provide the necessary initial thrust, private sector investment is expected to pick up on its back.
“We need greenfield projects if the national steel policy goal of reaching 300 mtpa steel production by 2025-26 is to be achieved. As more than 90 per cent of new capacity is coming through the brownfield route and doubts persist over further private sector investment beyond this, the public-public SPV model would act as a catalyst to generate fresh investment in the sector,” said an official in the Planning Commission.
Sources in the steel ministry said the proposal (to form JVs) has found favour with the prime minister’s office (PMO) and high-level meetings may be held soon by the cabinet secretariat with officials of different central ministries and state governments.
Once locations are identified, the PSUs could be asked to prepare an investment plan in conjunction with state governments for creating steel capacity. Sources said the government would also encourage public-private partnership (PPP) model in certain projects, if it makes business sense.
While confirming the development, a SAIL official said work on the SPV model would start only after a clear-cut plan comes from the government complete with clarity on land and iron ore linkages.
“The government should realise that mobilising funds for these SPVs would be difficult at this juncture when SAIL is completing a big expansion plan at all its production units,” the official added.
India’s steel-making capacity, including that of secondary players, exceeds 100 million tonnes now. This will go up by 25 million tonnes by 2017-18, but most of this expansion is brownfield in nature and no significant greenfield capacity has been proposed. Over half of this expansion will come from the two state-run firms — Steel Authority of India (SAIL) and Rashtriya Ispat Nigam (RINL).
Besides, Tata Steel has increased capacity through brownfield expansions to about 10 mtpa. The capacity of JSW Steel would go up to 16.5 mtpa from 14.3 mtpa at present. Essar Steel has increased capacity at its Hazira plant to 10 mtpa while Jindal Steel and Power’s capacity through brownfield expansions at Angul will go up to 6 mt by FY16. Bhushan Steel would also add around 3 mtpa capacity to take the tally to 6 mtpa. Monnet Ispat & Energy and Visa Steel are also expanding their capacities.
While proposing this public-public alliance for giving an initial thrust to the investment climate in the steel sector, the government is simultaneously encouraging the PSUs to explore partnerships under the public-private partnership (PPP) model.
SAIL has already been exploring a joint venture project with Posco while RINL is expected to form a JV with Russian steelmaker NLMK to set up a special steel production facility with an initial investment of close to Rs 4,000 crore. NMDC is also mandated to invite bids for ultra-mega steel projects, where it can form JVs with prospective bidders.
Source: http://www.mydigitalfc.com/