POSCO AND ARCELOR - CANNOT BE BLAMED FULLY ON THE GOVT

By Ruma Dubey

Over the past few days we have had some major big projects pulling out.  Many called it a ‘tight slap’ for the UPA Govt. But is it really so?  The Govt has it faults, major faults and seems to be completely dysfunctional. Yet, can we put the blame of this too on the Govt?

Arcelo Mittal scrapped its 12 mtpa steel plant which was to come up over 8000 hectares in Odisha. This MoU was signed way back in 2006 and the project cost was pegged at US$7 billion. A day prior to this, Posco also announced its decision to get out of a $5.3 billion project in Karnataka.

Many have said that these two companies have scooted out of India given the lackadaisical, flip flop nature of the Govt policies. True to some extent but not fully true.

Firstly, both have not ‘left’ India. Posco has pulled out of Karnataka but it is setting up its plant now at Odisha. Posco is expected to commence work on this $12 billion project at Jagatsinghpur as soon as the transfer of the entire 2,700 acres gets completed. Phase I is scheduled to commence production by 2018. It has scaled down the capacity of the plant from 12 million tones (MT) in Phase I to 8 MT.

ArcelorMittal also has not moved lock, stock, barrel from India.  It is setting up a 6 MT steel plant in Bellary, Karnataka and is at a cost of Rs.30,000 crore. It requires 4865 acres of land of which it has acquired 2000 acres and is also awaiting iron ore linkages. In Jharkhand, it is setting up another 12 MT plant and this is at a cost of Rs.50,000 crore. Since signing the Mou in 2005, it has now decided to split the 12 MT plant into two 6 MT plant each.

Both the companies have cited as land acquisition as the reason for getting out of the respective projects. Once again, that maybe true to some extent but does not seem to be full truth.

First and foremost, in Posco, the entire idea of setting up plant in Karnataka could have been a ploy to put pressure on the Odisha govt which was moving at a snails pace. It brought Karnataka into the picture to ensure that Odisha moves and gets all clearances and land. The timing of its exit makes one think – the Odisha Govt got the 2700 acres land required by Posco for Phase I and within two weeks of this, it quit Karnataka. It waited for 8 years in Odisha for land and in Karnataka it got impatient within 3 years?

In case of Arcelor, the big question which comes to mind is – why does it need 8000 acres of land?  Essar Steel is setting up a 6 MT plant at Odisha and its total land requirement is 2649 acres. Jindal Steel’s 6 MT capacity is coming up, again in Odisha on 4332 acres. In fact Posco’s 12 MT plant at Jagatsinghpur  is coming up on 4004 acres.

Another reason for the projects being shelved could also be the fact that steel industry is in a currently in a glut. Globally and in India, demand has slowed down considerably. When these two proposed these two plants in India, steel demand was estimated to grow by 8 to 10% and as against this, in FY13, demand was at a meager 3.3%. And at the moment there are no indications that demand is going to go up soon in the immediate future. Thus when the growth dynamics of the sector have itself changed and money is getting tight, why would they want to set up one more factory? Arcelor is itself having a tough time and under these circumstances, why would it put more money? ArcelorMittal had reported a loss of $345 million and sales were down 13%. Demand in Europe was down due to austerity drive there blunting steel demand.

Talking about money, when the situation is already tight, why increase the spread further when it could get out of this right now? Costs are over Rs.1,00,000 crore and projects are spread over different states. So under the current circumstance, why would these companies invest and extend themselves more when the prospects of the sector are in a dismal state and their financials themselves are under pressure?

These companies have pulled out two projects, not pulled out of India and it is more on account of the sector and their own compulsions and not entirely due to the Govt.

Yes, the UPA Govt is dysfunctional and is responsible for the state of the Indian economy today but all blame cannot be placed on them solely; we need to be watchful before we flog the same dead horse for all things going wrong.

India is a huge market and the potential is immense; those wanting to get out can do so at their own risk.