Tata Steel to sell iron ore to Bhushan Steel at arm's length pricing

Though Tata Steel now owns Bhushan Steel, it needs state govt's nod to supply ore from its captive mine as BSL remains a separately listed entity

Tata Steel has got the Odisha government's nod to sell iron ore from its captive Khandabandh mine in the state to its newly acquired Bhushan Steel plant.

Though Bhushan Steel Ltd (BSL), in which Tatas have acquired 72.65 per cent stake, has become a subsidiary of Tata Steel, the latter requires the permission of the state government to supply ore from its captive mine, as BSL continues to be a separately listed entity. 

Khandabandh mine at present supplies ore to Tata Steel’s Kalinganagar facility, which is considered to be an internal captive transaction. But unlike that, the supplies to Bhushan Steel will be in the form of ‘sale’ under the principle of ‘arm’s length pricing’, that means the transaction price should be the same as if the two companies involved were indeed two independents, not part of the same corporate structure.

“Such an arrangement will help the state government earn revenue on the sale of ore”, said a state government official.

Tata Steel is already selling ore to another subsidiary of it in the state, Tata Sponge, under the same principle of arm’s length pricing from its captive mines.

Tata Steel is in the process of raising the capacity of its Khandabandh mine to 8 million tonne of iron ore per annum. The mine is now supplying 60,00 to 70,000 tonne of ore per month to Kalinganagar plant.

As the company is poised to ramp of the capacity, both at Kalinganagar and Bhushan Steel, apart from raising the capacities of its own mines, the company is also looking to buy more ore from external sources including the state owned Odisha Mining Corporation (OMC). Tatas have about 50 sq km of iron ore/manganese lease in Odisha while most of the output from these mines go to feed the company’s Jamshedpur plant.

Though the nameplate capacity of Bhushan Steel is 5.6 million tonne, it is currently operating at a level of 3.5 million tonne. Tata Steel intends to ramp it up to 4.5 million tonne soon through improvement in operational efficiency.