Companies want Vedanta-style pact for iron ore supply

Already crippled with limited iron ore supply amid higher prices, steel companies in the state have demanded for a Vedanta-like agreement for ore supply at a regulated price.

“The state government has several options to supply iron ore to steel companies. One of them could be making similar agreement with us as it has done with Vedanta,” said Tara Prasad Patnaik, member of the All Odisha Steel Federation (AOSF) and managing director of Patnaik Steels and Alloys Ltd.

To supply bauxite ores for Vedanta's aluminium refinery at Lanjigarh, Orissa Mining Corporation (OMC) has formed a joint venture with Sterlite Industries, its Indian subsidiary. The JV will provide raw material from Niyamagiri Hills to the aluminium producing unit at a rate that includes only excavation cost and royalty.

The steel units in the state, mainly producing sponge irons, have demanded similar agreement with the state-run miner OMC as they do not have captive iron ore mines. They depend on OMC supplied ore which is sold through auction process every three months.

“Since the steel industries in Orissa do not have captive iron ore mines such as Tata Steel, they are buying raw material at much higher prices. We need to have a level playing field,” Patnaik said at a press meet here.

The steel manufacturing companies, however, welcomed the recent Central government decision to increase export duty on iron ores and said it will have downward impact on prevailing ore rates. They also said the state government's effort to curb export transportation would ensure better availability of iron ore.

“The state government has realized that the steel sector is completely crippled and they have started imposing restrictions one by one. We are hoping against all odds that in 2012, the sector will be in a recovery mode,” said P L Kandoi, chairman of the AOSF, which has about 300 units as its members.

The association also demanded for scrapping the Standard Output Input Ratio Norm (SION) saying it was impractical.

“The SION ratio says 16 tonne of iron ore is required to produce 10 tonne of sponge iron, which is only possible under ideal condition. The application of SION ratio should be withdrawn,” said Kandoi, who also heads the Kalinganagar Industries Association.

Terming year 2011 as dark year for steel companies in Orissa, he said, the banks have seized about six units for non-payment of loans while three companies have been sold out.

“We are afraid all steel units may close down in coming three to six months if raw material supply is not maximized ,” he said.