With the global economic scenario looking glum and the growth rate in India taking a hit, it is not an ideal situation for any individual or company. It is certainly not the time to flex muscles. However, there is no stopping the Steel Authority of India Ltd. (SAIL), which has embarked on major domestic and international forays. SAIL Chairman C. S. Verma speaks to Sujay Mehdudia about the strategy the company has in mind to overcome the tough times.
The global situation and economic environment do not look really great. What impact will this have on India and companies like yours?
The present global economic scenario is not happy. India cannot remain in isolation. However, there's a ‘silver lining' as India is a demand centre. The global capacity is 1.8 billion tonnes annually. For instance, production of steel in China is ten times that of India but its population is only 10 per cent more than us. So, it has to dump the production somewhere. But in India, this is not the case.
Our growth possibilities are immense. Our steel production capacity is 75 million tonnes annually, providing a huge opening for growth. The per capita consumption is only 55 kg and in rural India it stands at a meagre 10 kg against the world per capita consumption of 203 kg. So, the demand potential is in India and not in the U.S. or Europe or even China. India will get impacted but that is a short-term phenomenon. India is a demand and growth centre and it will emerge strongly from this downturn.
What kind of plans has SAIL drawn up to expand internationally and secure assets abroad to keep the raw material supplies at self- sufficient levels in future?
Today, India's iron ore reserves stand at 4 billion tonnes and we are self-sufficient. But in terms of coking coal, we have to import a large quantity. So, now the effort is to secure that also. We have an ambitious expansion-cum-modernisation plan of $17 billion to ensure proper supply of raw materials for SAIL's upcoming facilities. We are making a big foray into many countries for acquisition of coking coal assets.
We have signed a Memorandum of Understanding with Indonesia. We have opened an office in Indonesia and soon, we will be getting good news on the coking coal mines front. We also have plans to set up a steel plant in Indonesia and talks are in advanced stage. Many other countries are on our radar, including Mongolia. Besides, we are bidding on commercial basis in various countries. Two properties of coking coal assets are in advanced stages of negotiations. I would not like to name the country, but if everything goes well, one or two properties are expected to be in our lap by the end of this financial year. The overseas acquisitions and expansions are being done to secure raw material supplies and expand our footprints abroad.
What about steel capacity expansion overseas and joint venture plans with international players?
We have plans to set up steel plant in the Middle East. Due diligence is being carried out, but I cannot name the country or spell out the capacity. Our joint venture with Kobe Steel of Japan is proceeding on course with terms and conditions being finalised. This joint venture will set up a half a million tonne capacity plant in Durgapur at an estimated cost of $500 million to produce special grade steel. The joint venture will help SAIL acquire Kobe's patented technology used for value added applications to make nuggets. SAIL is also in advance talks with South Korean company POSCO for a 1.5-million tonne steel plant at Bokhara in Jharkhand with an estimated investment of around $3 billion. A MoU has been signed and talks have been very positive.
The proposed plant, with the use of POSCO's patented Finex technology, will produce specialised steel, mainly for the automobile sector. Finex is an environment-friendly, iron-making process where iron ore fines are directly used.
Can you tell us about the takeover of the Sindri fertilizer plant and its revival?
The Sindri fertilizer plant in Jharkhand is being taken over by SAIL with a planned investment of $7-8 billion. We have formed a special purpose vehicle to take over the assets of the company and all the documentation will be completed by February, 2012. The company will set up three subsidiaries. One will be to set up a greenfield steel plant with a state-of-the-art facility with a production capacity of 5.6 million tonnes annually. The second will be to set up a one million tonne capacity urea plant and the third will be to set up a 1000 MW power plant to feed the urea and steel plants. The total investment will be around $7-8 billion and with a time completion schedule of five years. The proposed steel plant will have a diversified flat product. While the 4.2-million tonne capacity of the plant is proposed to be dedicated for production of HR products, the balance will be earmarked for CR items.
There have been issues pertaining to imported coal for various Indian companies from countries such as Indonesia, Australia and South Africa. What is your take on its impact on SAIL?
There is no impact on coking coal imports from Indonesia. Production of coking coal is marginal in Indonesia. But South Africa and Indonesia are the future territories of coking coal.
The issues of imported coal pertain to thermal coal and boiler coal.
We are buying some imported thermal coal but not much as majority of our supplies for that comes from Coal India. So, the impact is bare minimum.
How do you see India emerging on the steel map of the world?
On the domestic front, we have drawn up a major expansion plan of around Rs.72,000 crore.
We hope that it will help India emerge strongly on the global steel scene and in the next five years, India hopefully should be No. 2 in terms of steel production in the world after China from its present fifth position.
India is also hosting the World Steel Conference in October, 2012, which itself is an indicator of India's emergence on the world steel scene.