Steel: Hype Vs Reality

In 1990, when Biju Patnaik took over as chief minister of Orissa, he had set himself a single goal making the state the steel capital of not only India but Asia as well.

Six years down the line, his ambitious plan remains a pipedream. And his failure to translate the promise into reality was a major cause for his partys debacle in the last Assembly elections.

Biju Patnaik is not the first or the last politician to play the steel-plant card to gain a political edge. From the mid-sixties, the setting up of a second integrated steel plant in the state an addition to the one run by the public sector Steel Authority of India at Rourkela has been an emotive issue for Orissas employment-starved people. And political parties of all hues have exploited this to the hilt to suit their electoral interests at various times.

 

Congress chief minister J B Patnaik, who succeeded Biju to power, has been no exception. He has been quick to claim credit for proposals of no less than 13 industrial houses to set up steel projects in the state (see table).

Though the line-up looks impressive, there is nothing new about this show of interest by industrial groups. In fact, most of these 13 projects were proposed during his predecessor Biju Patnaiks tenure.

Promises for steel plants, in fact, date even further back. When the steel industry was under government control, the Centre periodically promised the state another public sector steel plant.

The point is Orissa never got its due in spite of being ideally suited for steel projects. The state has 2,700 million tonne of iron ore deposits, which account for 26 per cent of the countrys reserves. Of this, 1,300 million tonne have been leased out to existing steel plants, which means 1,400 million tonne of ore reserves are still available.

This apart, other raw materials for steel making such as limestone, chromate, dolomite, manganese, quartz, and coal are also available in abundance in the state (see Undermined abundance on this page).

So what has come in the way of a steel boom in Orissa? Mainly, a lack of infrastructure support. The recognition of this weakness had prompted the previous state government to go in for a massive steel complex at Daitary in Cuttack district.

The complex was to have come up over an area of 22,000 acres to accommodate eight steel plants with a combined capacity of nearly 10 million tonne of steel products and a projected outlay of over Rs 20,000 crore.

The government had promised to provide developed land, water and power connections, rail and road links and effluent disposal lines to the projects within the site at reasonable cost. It also offered help to units to set up captive townships and maintain green belts in the area.

To finance this ambitious programme, the government had even raised Rs 130 crore through a bond issue. But with the complex proving a non-starter, a substantial chunk of the bond money has been diverted elsewhere.

The complex has stayed on the drawing boards mainly because most entrepreneurs have shown little interest in their ventures beyond signing MoUs or acquiring land allotments.

Of the eight projects proposed in Daitary, except for Mideast Integrated Steel and Nilachal Ispat Nigam, which are putting up 0.7 million tonne and one million tonne mild-steel projects at an estimated cost of Rs 1,350 crore and Rs 1,523 crore respectively, no project has progressed. This is three years after the ventures were mooted.

This lack of progress has raised questions about the intentions and credentials of the Daitary complex entrepreneurs some of whom are not even remotely connected with the steel sector. The steel industry is a specialised field, and it is not for any Tom, Dick and Harry to dabble in just because he has some capital to invest, says Subrat Roy, managing director of the joint-sector Nilachal Ispat Nigam.

He points out that some of the investors who have shown interest in the Daitary complex have been attracted by the new hype over steel and were never serious about putting up a project. Roy suggests that the government should constitute a high-level committee of technical experts to screen prospective entrepreneurs and examine the viability of the projects. Otherwise, the scepticism over these ventures will only send the wrong signals to genuine investors, he says.

This is important because the feeling of unease about Orissas prospective steel barons has even permeated to officials of the state-owned Industrial Promotion and Investment Corporation (Ipicol) which is responsible for piloting entrepreneurs to the complex.

Most prospective investors only seem to be interested in grabbing the land available at concessional rates and blocking mines on the pretext of captive mining, complains a senior official of Ipicol.

The government, according to sources, has already allotted about 14,000 acres of land to the eight parties in the complex. Of these, some have defaulted on their scheduled installment payments for the land.

Ipicol officials suggest that the state government would do well to set a land-use deadline for entrepreneurs and dispossess them if they breach it. The freed land could then be allotted to genuine investors many of whom have trouble getting land, a common problem in the state.

Perhaps the state governments unwillingness to crack down on prospective steel investors is partly because the increased flow of proposals (whether real or bogus) in the sector from the early nineties has helped improve the states status as a major destination for new investment at least on paper.

All the same, the excitement over steel in Orissa has had one salutary effect: it has helped create an investment climate of sorts in the state.

Recovering from NRI industrialist Swraj Pauls decision to scrap the Rs 6,000-crore Kalinga steel project in 1994, the total planned investment in this sector has climbed to Rs 32,679 crore.

This includes the Rs 4,388-crore mega expansion plan of the public sector Rourkela Steel Plant. Of the 13 projects proposed in the private sector, seven are large projects involving investments of more than Rs 1,000 crore. So far, though, only three of them are under implementation.

The most prominent among the proposals that has attracted the interest of the public, industry and government in the state is the proposed 10-million tonne steel plant of the Tata Iron and Steel Company (Tisco) at the port town of Gopalpur which is emerging as another nerve centre of steel making.

Engineering giant Larsen & Toubro (L&T) also proposes to set up a six million tonne steel plant there. Gopalpur has caught the attention of the industry because it offers the lowest product-distribution and raw material-assembly cost, says B Muthuraman, president and project-in-charge of Tiscos new venture, adding, and in todays competitive market nobody can ignore these facts.

But Tiscos emphasis on cost has put the company in trouble at Gopalpur where local people, opposed to their displacement on account of the project, have launched an agitation against the company.

While the locals want the project shifted from its present site to a thinly-populated place nearby, Tisco has ruled out any such possibility, arguing that the project would lose its cost-effectiveness.

Meanwhile, despite the threats of the company to shift out of the state and counter-threats by the locals not to let it come up at the present site, the project is on, mainly because of state government initiative.

For the state government, Tiscos Gopalpur project has become something of a test case for the states new industrial policy, so keeping it alive has become a prestige issue.

Doing this could be tough because, contrary to top-level official thinking that steel will jump-start the industrialisation process, many including state industries minister Niranjan Patnaik believe the answer is not so simple.

Niranjan Patnaik has already gone on record saying steel plants are not the only answer to the states myriad problems and the government should not lose sight of its objectives by chasing these projects.

It is natural, he added that, Orissa would receive many proposals for steel plants because of its ore reserves and other advantages, but the government should lay equal emphasis on other sectors that have received lukewarm response from investors though they have enormous potential.

Patnaiks suggestion sounds pragmatic, but given the hype surrounding Orissas impending steel boom, the government is unlikely to take it.