Column : Steel in the works

Written by Rishi Raj | Updated: May 11 2011, 08:14am hrs
The steel ministry has once again started working on a national steel policy. If the effort fructifies, it will have to be called a new national steel policy since currently a national steel policy is in force, since 2005. Why do we need a new policy within just six years, and in an old economy sector, which is totally deregulated. The steel secretary has justified this, in an interview, by referring to changing parameters, growing demand and changed underlying assumptions. In his words: The current policy estimated steel demand would reach 120 MT by 2020. It was finalised in 2005, assuming a 6.9% growth and a 7.5% growth in economy. However, in the last five years, India has expanded at 9%, with the steel sector growing at a 9.2% CAGR. We expect Indias steel demand will reach 120 MT by 2013-14. We expect this demand to be maintained or to grow with investment in infrastructure.

Implicit in his statement is that the task of formulating a steel policy is fairly simple: Gauge demand by a model and fix a target. How to achieve it is a different story altogether, and that becomes clear if one goes through the 15-page national steel policyin terms of achieving the goal of 120 MT by 2020, it only outlines the requirements that anybody broadly familiar with the sector would also know and does not require this document.

Well, lets see the development since the time the steel policy was made in 2005. That year, the South Korean steel manufacturer Posco announced its plan to set up a 12 MT plant in India. It has only recently been able to get some kind of an approval, which may see it finally set up the plant. In 2006, LN Mittal also announced setting up a 24 MT plant in India, not even a tonnes production has begun yet. The year 2005 saw numerous private steel manufacturers entering into MoUs with state governments for steel plants, not a single one has seen the light of the day yet.

Tata Steel was then a 4 MT company, ranking 55th in the world in terms of production capacity. In 2007, it acquired Corus and emerged as the worlds fifth largest producer. In the interim, it also acquired NatSteel and Millennium Steel overseas, thus increasing its capacity.

Early this year, JSW Steel, another major domestic producer hungry for growth, acquired a 41.29% stake in Ispat Industries, thus raising its overall capacity very close to the countrys largest steel producer, the state-owned SAIL. Tata Steels expansion in the domestic market through greenfield ventures is moving slowly because of regulatory hurdles and similar is the case with JSW Steel. Both had to look towards acquisition to shore up capacities.

This makes it clear that whatever capacity addition has taken place in the last six years and whatever growth the companies achieved were despite the government in general and the national steel policy in specific. If the industry does not need any steel policy, as the 2005 exercise shows, why waste time However, the steel ministry can make this exercise meaningful by addressing the core issues where the industry needs its help, something which it did not do in 2005.

Whats the single biggest demand of the industry in the steel sector today Problem of land to set up plants and getting linkages to iron ore mines to feed their steel plants. The other crucial raw material depending upon technology is coking coal, but since India does not have enough reserves as well as quality coal required for steel making, this has to be largely imported. Both are beset with problems and the 2005 policy does not offer any road map. With regard to iron ore, it simply describes the scenario and highlights what needs to be done, which is simply a statement of intent. It is fine for an analyst to do so but not for the government, which needs to offer a solution and a clear road map. On land, the policy is totally silent as if the problem does not exist!

Will the steel ministry be able to solve these two problems in its new national steel policy No chance, looking at the way it is going about the process. Iron ore is not in its domain but in the realm of the mines ministry and land is a state subject riddled with several other regulatory hurdles. Unless the ministry doesnt approach the government to set up a GoM, which has representation from other related ministries, the exercise to come out with a policy would be meaningless. If it is really serious about coming out with a policy, first of all it should press for a GoM. This body then should identify sites, both land and iron ore mines, and acquire them, and subsequently offer them to the industry through competitive bids. All regulatory clearances, like environmental, should be taken care of by this government agency. A policy initiative only by the steel ministry does not make sense as all areasbe it trade-related, mines and coal, power, land, and road and rail tariffare outside its purview.

In short, there has to be unified approach to policymaking rather than an isolated approach, which seems the case currently.

Without this, the 2011 steel policy will be as meaningless as the one drafted in 2005 and some six years later the exercise will have to be repeated.