SAIL plans greenfield units abroad on official invitation

Written by Rishi Raj | New Delhi | Updated: Jan 1 2011, 09:01am hrs
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With an eye on having a global footprint as well as securing supplies of key raw material like coking coal and iron ore back home, the state-owned Steel Authority of India (SAIL) is looking at building steel plants abroad. Unlike private sector peers like Tata Steel, JSW Steel and Essar Steel which have acquired and expanded foreign steel mills, SAIL is planning greenfield plants only in those countries where it is invited by the government to set up the plant in a joint venture, and allocated land and captive mines for iron ore and coking coal.

In an exclusive interview with FE, SAIL chairman CS Verma said: We are a public sector undertaking and will adopt this very route for our global presence. We have received some offers from some countries and we are evaluating them. Our objective is clear: The government concerned should give us land, captive iron ore and coal mines and we will manufacture steel there for their market. Verma, however, did not disclose the names of the countries which have proposed such joint ventures. Official sources said the Indonesian government has sent a proposal to SAIL.

Verma indicated two benefits to this. One, we establish our global presence. Two, after meeting the needs of that particular plant, we will be able to bring surplus coal back to India for our use here.

Analysts agreed that the SAIL approach to secure a global footprint is cautious and pragmatic, but pointed out it could still lead to a bidding war since private sector steel companies would also vie for such projects.

SAILs approach appears to make sense because currently, while the company meets its entire iron ore requirement from its captive mines, the same is not true for coking coal. We import 75% of coal while the balance 25% is met through indigenous sources. Here also, the share through our captive mines is minimal; so, we need more coal from our captive sources to control costs, he said.

This is the first time SAIL has talked about an overseas foray for steel manufacturing. So far, it has been scouting for coal mines abroad as part of a consortium ICVL with other PSUs like Coal India, RINL, NMDC and NTPC. The consortium recently appointed Citigroup to conduct a due diligence on Australias Riversdale Mining.

Asked whether he thinks ICVL is not working since it has not been able to acquire a single mine so far, Verma said that the consortium took final shape only in June 2009. In 2007, the idea for such a venture had only emerged; so, it hasn't been that long and we will surely be able to acquire some coal mines abroad. We are already working on 3-4 proposals, he said.

On the prospects and problems of the steel industry, Verma said: The demand and growth are fine. Steel growth in the country will be aligned with overall growth rates. However, the problems remain the same. Input costs have gone up while the actual realisation is down because compared to the same period of last year, steel prices are down.

On the domestic front, the companys expansion and modernisation are on track, with the first leg expected to be complete by 2012-13 by when its capacity will be around 24 million tonne. The second phase will be over by 2020 when it would be a 60 million tonne company. Verma said SAIL has signed MoUs for joint venture projects with South Koreas Posco and Japans Kobe Steel and is working out a detailed project report. Both these ventures would produce value-added products which yield high margins in todays market. As earlier reported by FE, despite the JSW Steel acquiring 42% stake in Ispat, SAIL continues to be the market leader in terms of capacity.