Mesco Group Shelves Rs 3,000cr Orissa Steel Project

The steel plant, which is to be set up in Orissa, has been put on hold till the completion of the Rs 457-crore steel project being put up by another group company, Mideast Integrated Steel Ltd.

According to Rita Singh, managing director of the group, further progress on the project will commence only after the first steel plant goes into production, which is slated by the end of the year. We want to consolidate on the gains of the first project. Only then will we be able to raise funds for the second steel plant, which is a much bigger project, said Singh.

When asked if the delay would have any effect on the joint venture which the company has formed, Singh said that the group's partners, too, would understand that the liquidity crunch prevailing in the market had made it very difficult for the company to proceed with the project. The company has already purchased the land for the 3.2-million-tonne plant in Daitari near Bhubhaneshwar. It is now planning to pursue the GDR route to raise part of the funds, but again, only after the first project goes into production.

The funds will have to be raised abroad given the tight liquidity conditions prevalent in the Indian markets, Singh said.

The company had initially tied up with Danielli United, which had agreed to invest Rs 100 crore as equity and provide technology with a buy-back agreement.

The alliance fell through, and the group tied up with Mannesmann AG of Germany to provide technology for the plant.

The project suffered a major setback when a consortium of financial institutions led by the IDBI effected a massive cut of Rs 1,000 crore in the proposed Rs 1,500-crore funding for the project. This had forced the company to look abroad for funds. It held talks with Asian Infrastructure Development Fund and Dutch Exim Bank for syndicating a loan worth Rs 500 crore each from them.