Pipeline politics clog Stemcor's India plans

UK’s trading giant struggles to set up Rs 1,500-cr pellet plant in Orissa.

When it comes to hassles related to environmental issues, even the world’s largest steel trading company finds itself stuck in India on a flagship project. Stemcor’s India unit has completed the construction of a 4-million-tonne pellet plant in Orissa; it has even run the trials successfully. But the UK-headquartered firm has yet to commission the plant, as it has not received the forest clearance for a section of the project for over a year now.

The Orissa pellet plant is the only manufacturing set up for London-based Stemcor, a $5-billion privately owned trading powerhouse in Asia. The section under the regulatory scanner concerns a part of a slurry pipeline that has been made to transport ore from the mines to the plant.

“It’s a 230-km pipeline, and the plant is held up for a small portion of forest clearance,” shrugs Matthew Stock, managing director, Stemcor India. “Earlier, we thought it wasn’t required. Now, we have applied for it and are awaiting clearance. The entire pipeline is ready except for a 10-km stretch,” he told Business Standard.

THE BOTTLENECK

* It’s a 230-km pipeline, and the plant is held up for a small portion of forest clearance

* The company now hopes to get clearance by next month

* The firm has brought 20,000 tonnes of iron ore to the plant, converted it into pellets

* The Orissa pellet plant is the only manufacturing set-up for London-based Stemcor

Stock explains the original route ran through two operational iron-ore mines. One belongs to the Orissa Mining Corporation, the other to Tata Steel. Being producing mines, they already have the necessary forest clearances. “Our pipeline was supposed to go through them, along the state highway. The edges of the state highway, technically speaking, are forest land. So, we took all the approvals from all the agencies to run the pipeline along the highway,” he points out.

But, subsequently, the green ministry specified that a separate clearance was essential to construct the pipeline. That prompted the company to believe it would be better to go for a reroute. “We wanted to avoid as much of forest area as we could, but couldn’t do it 100 per cent. So, we went for a fresh approval,” recalls Stock.

That clearance is still awaited. The company, with 80 offices in 40 countries employing 1,400-plus people world-wide, hopes to get it by next month to restart work. After that, another five-six weeks will be required to complete the remaining work on the pipeline. “The pellet plant has been completed long back. But, we couldn’t commission it because of the delay in laying the pipeline,” says Stock. The company, on a trial run, has already brought 20,000 tonnes of iron ore to the plant and has successfully converted it into pellets. Pellets are balls of ore with high iron content which are an intermediate in the steel making process.

Essar Steel is the country’s only other company to have successfully run slurry pipelines. It has two pipelines.

One of these links its mines to its beneficiation plant and a pellet plant in Vizag (which is 267 km long and the longest in India). This line links its beneficiation plant in Chattisgarh’s Bailadilla to the pellet plant at Andhra Pradesh’s Visakhapatnam. It passes through Orissa and has recently faced security threats from the Naxals. The second one is a 253-km pipeline linking mines to its beneficiation and pellet plant at Orissa’s Paradip.

Despite these, Stock is optimistic that Stemcor will not face similar security threats. For, their pipeline is away from the Naxal-sensitive regions of Orissa.

Logistically, a slurry pipeline is a cheaper and faster way of transporting ore to a plant. Essar, during the commissioning of its Bailadila-Vishakhapatnam line was said to save at least Rs 200 crore in transportation costs due to the pipeline. An analyst tracking the sector notes transporting ore by road is “very expensive” in India. “If the security issue is tackled, the slurry line is the most efficient and cost-effective way to transport,” he adds.

Industry leaders have time and again raised concerns over this issue. According to one estimate, the cost of transporting ore from transporting ore from Chhattisgarh to a plant in southern India by road is more than the cost involved in a similar operation from Australia to an Indian steel plant.

The 1951-founded Stemcor has already spent Rs 1,500 crore in building the pellet plant and the slurry pipeline. Stock said the company had raised a loan of Rs 1,000 crore and spent Rs 500 crore from its own pocket. This Rs 1,000-crore loan in turn has been refinanced because of the delay “The Rs 1,000-crore loan has been refinanced completely with a new set of lenders,” informs Stock. “We have repaid the older lenders. This was due to the delay in commissioning the project.” The company is betting big on the high pellet prices and demand in India.

According to Stock, iron-ore lumps are getting scarcer, thus leading to a rise in the demand for pellets. “Also, the government has completely abolished the export duty on iron ore lumps, which gives us the opportunity to export,” he adds. “However, we are only looking to serve the local market at the present. There is ample demand here.”