Higher cost of tie-up with private firm pushes PSU into fellow PSU’s arms
KIOCL Ltd, a 100 per cent export-oriented unit under the ministry of steel and mines, has dropped plans to go with a private firm for setting up a Rs 330 crore ductile iron spun pipe (DISP) plant in Mangalore as part of its diversification programme.
The company, instead, has decided to form a 50:50 joint venture with the Rashtriya Ispat Nigam Limited (RINL), the flagship company of the Visakhapatnam Steel Plant to set up the plant in Mangalore with a capacity of 100,000 tonnes per annum.
“We have dropped the plans to go with the private firm due to the higher cost, and also with the thought of roping in another PSU. Meanwhile, RINL has shown interest in joining us for the project. We have already discussed about this with the CMD of RINL and he has agreed to a JV. The boards of both companies will meet shortly and approve the JV formally,” K Ranganath, chairman-cum-managing director, KIOCL said.
KIOCL plans to build the DISP plant adjacent its existing pig iron plant in Mangalore on the west coast. The proposed plant will utilise the superior pig iron with low phosphorus and low sulphur, already produced by the company.
KIOCL had floated global tenders for this project twice in the last two years and both the occasions, Larsen & Toubro had emerged as the L1 bidder. But last week the KIOCL decided to drop the plan of going with the private player to build the DISP plant, he said.
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“The main reason for dropping the earlier plan was purely on the grounds of high cost involved in it. At this juncture, when we don’t have captive iron ore mines, we did not want to invest a higher amount. The proposed JV requires us to invest only Rs 150-175 crore as equity and works out better for us,” Ranganath told Business Standard.
He said the company would form a separate company to take up the project with RINL. Apart from selling the ductile iron spun pipes in the domestic market, the JV company will also export to European countries as there is a big demand for it. “We already have a captive jetty at New Mangalore Port and it will be cost-effective for us to export our products,” he said.
L&T had quoted around Rs 330 crore for the ductile iron spun pipe plant. The KIOCL board will meet early next week to approve the proposal formally, he said.
KIOCL, as of March 31, 2009, had a cash reserve of Rs 1,468 crore.
Ductile iron spun pipes are used in advanced and developing countries because of its superiority over cast iron spun pipes. Even in India, there is a huge demand for spun pipes from various state governments, urban development bodies. They are used in irrigation projects, drinking water supply and sewerage projects and other large infrastructure projects.