Current pipeline insurance fiasco unlikely to dent Essar's new pipeline

The slurry pipeline set up by Essar Steel has been damaged repeatedly by the naxals

While the Bombay High Court has appointed two retired Supreme Court judges to be arbitrators in case where Essar Steel is fighting for Rs 1,000 crore claim from New India Insurance, the two are confident to sort out insurance for the company’s new re-laid slurry pipeline passing through the same Naxal-infested area between Kirandul and Vizag.

The Bombay High Court has vide its order has has appointed Justice B P Singh and Justice Aftab Alam, retired judges of Supreme Court to be arbitrators for Essar Steel India and New India Assurance respectively.

This order of the Bombay High Court will pave way for constitution of Arbitral Tribunal for resolution of dispute between the company and the insurer on the claims lodged by Essar Steel consequent to the damage to its pipeline. The Bombay High Court has however stayed the order for 12 weeks to enable New India Assurance to approach Supreme Court in view of the intervening  vacation in Supreme Court.

The slurry pipeline set up by Essar Steel to transport iron ore from its mines to the pelletisation plant has been repeatedly damaged by the naxals. New India Assurance, the insurer of the pipeline denied the Rs 1,000 crore claim on the pretext that Essar hid information from the company on the possible naxal attack. In the meantime, Essar has decided to junk the pipeline altogether and set up a new pipeline.

The company denied to comment on the story terming it as “premature”. However, a company official on the condition of anonymity, said that the insurance for the new relaid pipeline shouldn’t be an issue as the situation in the area is not hidden from anyone. He said, “There is a reason we have reworked on the path of the slurry pipeline and are making it safer.”

An official from the New India Assurance, said, “They are our clients. We will examine the proposal afresh, when it comes to us."
 
Another official privy to the development said that keeping the case aside, the insurer would view this proposal as a separate business proposition.

According to the company, the new slurry pipeline will travel mostly through the state and national highways thereby making it a lot safer than the existing one. The first pipeline travelled mostly through the forest areas hence making it an easy target for the naxal attacks.

The pipeline was attacked by the naxals more than once rendering it totally useless the second time around.

The earlier pipeline, from Kirandul-Vizag, at 267 km was the longest in India. The company maintains that rerouting the pipeline alongside the highways mean that the length of the pipeline will cross 267 km. Essar Steel is currently in the process of assessing the new path of the slurry pipeline.

The cost of the new pipeline is expected to be in the upwards of Rs 1000 crore, the cost of the earlier one.
Last  year, the company completed its 10 million tonne steel plant expansion at its Hazira Complex in Gujarat. At its peak, the company will need roughly 16 million tonne of ore to run the plant. Currently the Hazira steel plant is running at lower than half of its capacity and is expected to end the current fiscal at 60-70% utilisation.

The pellet plant at Vizag has a capacity of 8 million tonne making it very important for the profitability of the steel plant.