Prospective investors for Essar Steel may have to factor in the Naxal violence which has cost the company quite a bit in the past.
Essar Steel, promoted by the Ruias, was among 12 companies recommended by the Reserve Bank of India for insolvency under the Insolvency and Bankruptcy Code. A number of companies including Tata Steel and ArcelorMittal have evinced interest in Essar Steel.
In 2005, Essar Steel built a 267-km slurry pipeline, reportedly world's second largest, to carry iron ore in slurry form from Dantewada - infamous for Naxal violence -to the company's Visakhapatnam pellet plant that feeds the Hazira plant.
But Essar Steel could never comfortably operate the pipeline due to Naxal terror. The pipeline passes through the Naxal stronghold pockets that rebels claim to be their "liberated zone". According to Chhattisgarh police's record, Naxalites had damaged the pipeline over 20 times between 2005 and 2010.
Industry sources said that the Vizag slurry pipeline was not operational for approximately 1,250 days (equivalent to 3.4 years) leading to frequent disruptions in steel production at the Hazira plant. Besides the non-operating pipeline increases the cost of transportation, it also results in loss of volume and quality.
During the period when the pipeline was not in operation, the company had to incur a loss of about Rs 5,000 crore. The cost of transportation via slurry pipeline is Rs 100 per tonne against Rs 1,500 per tonne otherwise.
When contacted, an Essar Steel spokesperson admitted that they had been facing the challenge in the area. "It is not easy to operate the pipeline as either the Naxalites will damage it or the mischievous villagers in their pretext to extort money from the company," Bhawarlal Bothra, former Bastar Chamber of Commerce and Industry President, said. Patrolling the vast pipeline is also a big challenge as handful security personnel would be vulnerable to the Naxals in the densely forested area, he added.
But it's not just Essar Steel which is at the receiving end of Naxal violence. The country's largest iron-ore producer, National Mineral Development Corporation (NMDC) also faces challenges from the red army. The company has two fully mechanised mines in Dantewada district that has a major share in NMDC's total output.
The rebels have been damaging the conveyor belts of the mines from time to time. In 2006, they struck at the company's magazine and carried away the entire stock of explosives killing eight CISF jawans.