Tata Steel to source water from Nilachal Ispat for Kalinganagar plant

The company is yet to secure land acquisition nods for inter-connectivity for its own water supply to the plant scheduled to be commissioned by December

Don't want to miss the best from Business Standard?

Tata Steel, the country's largest primary steel producer, has entered into a water-sharing agreement with Nilachal Ispat Nigam for its 3 million tonne Kalinganagar plant.

Tata Steel is yet to secure land acquisition approvals for inter-connectivity for its own water supply to the plant scheduled to be commissioned by December.

"Tata Steel will receive water from Nilachal Ispat from November 1 for a period of one year," an executive at Nilachal Ispat told Business Standard. "The government of Odisha has issued us permission to supply up to 17.5 cubic meter per second (42,000 cu meter per day) of water and we will try to supply the entire quantity to the Tata plant," he added.

Nilachal Ispat refrained from divulging the financial details of the deal and said any water supply beyond a year would need board approval.

Tata Steel is also sourcing water from Odisha Industrial Infrastructure Development Corporation (IDCO) for its Kalinganagar plant. "We are supplying 1,100 cubic meter per hour to Tata Steel since March and this contract is for one year. We will provide an extension if the company seeks it," said an official in the water division of IDCO.

For every tonne of steel needs about 4 cubic meters of water, which means 12 million cubic meters of water for a 3 million tonne steel plant, according to industry sources. Tata Steel did not respond to a query about its water shortfall at the Kalinganagar facility and its plans to fix it.

Delays in approvals for inter-connectivity of water supply was the reason Tata Steel had to enter these agreements, said Nilachal Ispat executives and IDCO officials.

Analysts are confident Tata Steel will have its water issues sorted out within a year, before its contract with Nilachal Ispat expires.

"It is surprising Tata Steel has not managed to have its water supply in place, but it looks like a temporary glitch," said Giriraj Daga, senior analyst, SKS Capital & Research.

As Tata Steel grapples to meet the Kalinganagar plant commissioning deadline, it is also working on how to sell more steel in a subdued market. The company's stance of feeding the market in phases was the only viable strategy till demand revived, analysts said.

Tata Steel plans to start selling half a million tonnes of hot-rolled steel from the Kalinganagar plant in 2015-16 and add another million tonnes in 2016-17. The balance will come in subsequent years.

The Kalinganagar facility is for 6 million tonnes of steel, which has been divided in two phases of 3 million tonnes each. The first phase, set up at an investment of Rs 25,000 crore, began coke production last month. Apart from the Kalinganagar unit, Tata Steel has a 9.7 million tonne plant in Jamshedpur.