Posted on 03 Apr 2015
State-owned iron ore producer National Mineral Development Corporation and steel maker Rashtriya Ispat Nigam Ltd have agreed to pick up "significant" minority stakes in one of India's biggest steel making facilities due to come up in Telangana. The integrated steel project, to be developed by a consortium led by Steel Authority of India, was promised by the central government under the Andhra Pradesh State Reorganisation Act of 2014, which paved the way for the creation of Telangana.
The plant will have an annual
production capacity of 3 million tonne through electric arc furnace mode,
involving an outlay of aroundRs 18,000 crore.
Four people aware of the development told ET that the Union steel ministry may
also consider a Telangana government proposal to allow state-run enterprises
into minerals and coal mining to pick up minor equity holdings in the venture.
"At a meeting of the task force
of the Union steel ministry in Delhi last Thursday, the representatives of
SAIL, NMDC and RINL have agreed to take up the project under the consortium to
be led by SAIL," one of these people said.
"They have decided to work out the details on the shareholding pattern in
the proposed joint venture over the next few weeks." SAIL representatives
have, however, told the steel ministry that the internal rate of return (IRR)
estimated after preliminary feasibility studies was found inadequate to make
the project viable, given quality of iron ore, the reserves and the proposed
capacities, another person said.
Telangana State Industrial
Infrastructure Corporation Managing Director Jayesh Ranjan, who was present at
the meeting of the steel ministry's task force, confirmed the developments.
"The representatives of SAIL have pegged the IRR at around 10.84%, way
below the required IRR of 16-17% for a steel facility to be viable," said
Ranjan. "The SAIL representatives have sought significant incentives from
both the Central and state governments to help improve the IRR and make the
project via-ble," he told ET.
Ranjan said SAIL was seeking rebate in excise and income tax from the Centre, and reimbursement of value-added tax, besides subsidies on power and investment from the Telangana government.
"The Union finance ministry representative present at the meeting said the Centre has recently announced 15% additional investment subsidy and 15% additional depreciation allowance to projects in Telangana.
We have informed SAIL officials that the Telangana government was extending several benefits to the mega projects that include 100% VAT reimbursement and power subsidy among others. In the light of these central and state incentives, we have requested the SAIL authorities to rework the IRR and revert," he said.
The
Telangana government expects SAIL representatives to revert with reworked IRR
in the next couple of weeks to enable the task force to review and decide if
any further incentives would be required to make the project viable.
"If there is still a gap found
between the desired IRR and estimated IRR, then we will appeal to the Centre to
consider extending further incentives including some kind of viability gap
funding," said Ranjan.
Confirming the equity participation from NMDC and RINL, the Telangana
bureaucrat said, "No single agency has the financial capability to invest
in totality and there is a need for a consortium approach to take the project
forward".
While the consortium will be led by SAIL with equity participation from NMDC and RINL, the Telangana government was looking at enabling some of its public sector enterprises such as Telangana Mineral Development Corporation and Singareni Coal Collieries to pick up minor holdings, he said. Details of the shareholding pattern between the Central and state public sector units will be decided by the steel ministry's task force over the next few weeks.
