The government plans to emulate the policy of ultra mega projects being implemented in the power sector in the country?s resurgent steel industry. The idea is to rapidly increase steel making capacity in the country and feed the growing demand for primary and secondary steel products from other manufacturing industries. The scheme, first conceived more than couple of years back, has remained a non-starter in the absence support from the state governments.

It has now been revived as more states have now shown interest in ultra mega steel projects (UMSPs) to bring back investor interest on setting up greenfield steel facilities in the country. The minimum size of UMSPs would be 10 million tonne, enough to attract large steel companies eying to capture a larger share in the growing market.

?We have received very encouraging response from state governments who have offered land for these UMSPs. The steel ministry would conduct its own assessment before earmarking land for steel projects under the scheme,? said an official in the steel ministry asking not to be named.

Major steel capacity addition programme in the country is being currently undertaken through brownfield projects as greenfield projects of companies such as Tata Steel, Arcelor Mittal, Posco, JSW Steel are grappling with severe land acquisition problems, raw material security issues and environment and forestry clearances. UMSP will eliminate this problem as these projects will be free from any encumbrance and land, mining, environment and forestry clearances will be taken by state agencies prior to inviting bids from companies.

It is expected that once sufficient projects are identified under the scheme, the UMSP will be launched through a dedicated agency under the steel ministry. Sources said that as in case of ultra mega power project scheme (UMPP) being run by Power Finance Corporation (PFC), administration of UMSP could also be given a dedicated financing arm that could be set up as Steel Finance Corporation.

As per the plan, the steel ministry along with the state governments (Jharkhand, Orissa, Chhattisgarh, Karnataka) will initially identify four to five locations close to iron ore mining sites for setting up UMSPs. These projects would be offered to both public and private sector companies through competitive bidding route, which will take into account upfront payment by companies, royalty on minerals, technology employed and time taken to complete the project. The issue of UMSPs has already been discussed at the inter-ministerial group set up to accelerate development of steel projects across the country. It will now be discussed with other stakeholders before a formal proposal is put up for implementation.

?It is a very good idea that will definitely help to accelerate capacity addition in the steel sector. But the government should be careful before announcing UMSPs as it could cause problems on valuation and getting prior regulatory approvals,? said a Delhi based steel analyst who did not wish to be named.

The government?s proposal aims at giving a fresh impetus to the creation of greenfield steel capacity. Fresh or greenfield expansion has become a problem because of issues such as land availability in Jharkhand, Orissa and Chhattisgarh that has delayed several projects where state governments had signed MoUs.

Tata Steel has put on hold its plans to set up a 12-million tonne per annum integrated steel plant in Jharkhand and a 6 million tonne unit in Orissa has been delayed . The plans of AreclorMittal to set up massive steel plants in India, also looks doubtful as clearances are slow.

India has a set a target of 120 million tonne of steel output by 2012, which will be largely met through brownfield expansion. While steel production slowed down 6.4% in 2010, independent assessment of the market put double digit growth in steel demand during the same period.

This is further likely to grow between 12-14% in fiscal 2011-12 needing rapid addition in steel making capacity.