Captive mine remains a pipe dream for Vizag Steel

Auction route makes it tougher for Vizag Steel to get one

Vizag Steel Plant, the only steel manufacturing facility among the public sector unit (PSU) steel plants that have no captive iron ore mine, sees little chances of getting one under the present auction route owing to unmatched competition from private players.

Established in the port city of Visakhapatnam about 35 years ago, this Navaratna steel plant has been running on iron ore supplies from NMDC since the beginning.
 

While there were no clear reasons as to why this PSU steel unit was not allocated a captive mine all these years, the effort to secure a mine in a recent auction in Odisha made its management realise that the task has only become tougher.
 

"We have participated in a recent auction for a mine in Odisha in the hope of putting a good show. But private steel maker Bhushan Steel has quoted a price 300 per cent higher than what we were willing to pay for the mine. We cannot compete with private companies as we are constrained by our own assessment of economic viability of the mine and other norms" an official of Rashtriya Ispat Nigam Limited (RINL), the corporate entity of Vizag Steel, told Business Standard.
 

The initial experience of public sector iron ore company NMDC was also not very different from that of Vizag Steel since the auction was mandated for allocation of all mining assets six months ago. "We have recently participated in an auction for a mining lease for tungsten reserves in Maharashtra. To our surprise a private company has quoted a starting price that itself was 100 per cent higher than what NMDC was willing to pay for the asset," an NMDC official said on condition of anonymity.
 

The issue of Vizag Steel not having a captive mine has found a mention in Rajya Sabha last week when an MP from Andhra Pradesh attributed the losses reported by the company for the last two consecutive years to the higher production costs due to lack of a captive mine.
 

The factory officials maintain that the production cost was 30 per cent higher than those who own captive mines.

The management of 6.3 million tonne Vizag Steel, which has been currently investing Rs 4,000 crore to reach 7.3 million tonne (MTPA) level through modernisation of existing facilities by next year, has reported a net loss of Rs 1,200 crore on Rs 12,781 crore revenues for the year 2016-17. This is the second consecutive year of losses after 15 years of continues profits by the company.
 

Last year NMDC has supplied 6.5 million tonnes of iron ore to Vizag Steel Plant from its Donimalai mines in Chattisgarh located some 500 km away. It sold iron ore at an average price of Rs 2,100 per tonne at the pit head. The steel plant incurs another Rs 1,200-Rs 1,300 on transportation besides Rs 600 on royalty on every tonne, spending a little over Rs 4,000 per tonne by the time the iron ore reaches the factory premises, according to the company sources.
 

While the Parliament Member from AP argued that it would have just cost around Rs 500 per tonne if Vizag Steel had owned a captive iron ore mine, the transportation costs can only be reduced if it gets a mine in Odisha, which is closer to Vizag.
 

As the demand for steel remained subdued resulting in lower prices the company has been losing about Rs 1,000 on a tonne of steel, according to a Vizag Steel official.
 

However and industry insider said that losses cannot be attributed to just captive mine issue alone since the Steel Authority of India's (SAIL) plants are also making losses despite having captive iron ore mines.
 

Vizag Steel was offered a 360 million tonne magnetite mine in Rajasthan's Bhilwara, which is farther away from the steel plant, some 3-4 years ago. However, the RINL declined to develop the mine due to viability issues as it requires beneficiation and comes with low Fe content.