As a unit inside Falta SEZ, the steel plant could avail of external commercial borrowing (ECB) for import of capital goods and the interest cost will not be more than 7 per cent to 9 per cent, claimed Mukesh Tandon of the Sonthalia group.
In addition, it would enjoy benefits like discounted power and other costs, which would together make the unit cost-competitive enough to weather the problems cause by any strengthening of the rupee, he added.
In the short term, the unit would have another advantage: the products would be exempted from the export duty imposed by the government of India to increase domestic steel supply and bring down prices. Because of these factors, the project was cost-competitive, more so as domestic interest rates on rupee loan were above 13 per cent for such projects, he claimed.
Tandon said as Falta SEZ was a duty free enclave and deemed to be foreign teritorry for the purpose of trade operations and duties and tariffs, the unit would be granted certain entitlements such as duty deferment on import and domestic procurement, simplified operational regime and specified access to the DTA market. The project would aim to sell to other SEZ projects coming up in India, which would need construction steel.
Sonthalia expected to be the most competitive supplier as sales to other SEZs and SEZ units would be treated as exports and enjoy a combination of benefits not enjoyed by any unit in India at present. The 18 acres needed for the project inside the Falta SEZ was already with the company and the technical report was ready too.
The group was tying up with merchant bankers for raising private equity and debt from both foreign and domestic sources. Falta SEZ offered plots at lease rent of Rs 25 per square metre per annum, subject to concession in the first year of 30 per cent, the second year at 25 per cent and the third year at 20 per cent.
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West Bengal State Electricity Board power was priced between Rs 1.55 and Rs 3.72 per unit but extended waiver of 20 per cent to 40 per cent on the basic electricity charges to new industrial units or industries undertaking consumption above 50HP as well as 50 per cent concession on basic rate for power consumed between 11pm and 6am. The container handling jetty operational was linked to Haldia Dock complex, about three hours sailing from the jetty.
Cargo of Falta SEZ units was not subject to examination and appraisement at the jetty. The steel plant would comprise manufacturing facilities for TMT bars and structurals in the first phase using billets as raw material, which would in turn be partly produced in-house through the induction furnace route using scrap and DRI (directly reduced iron) as raw materials.
The project would have a rolling mill with capacity of 2,50,000 tons, imported from a leading global supplier, Tandon added. He claimed the project was unique, being the first steel plant located inside an SEZ in India, and also one that would come up in less than 18 months as basic infrastructure was ready at Falta SEZ as well as integrated logistics infrastructure.
For example, the Falta SEZ had its own jetty, currently used by a company for shipping logs, but proposed to be taken over by Development Commissioner of Falta SEZ soon for merchant exports by SEZ units to minimize cost and time for shipping raw material and finished goods to Haldia Port through barges. The project could have come up faster had it not been for the 9-10 month waiting period for steel making equipment like the billet caster, he said.
The group was a leading exporter of engineering items from eastern India. Tandon said the group was already in talks with private equity players to participate in the project while working in parallel on a project to set up additional facilities inside Falta SEZ for manufacture of copper wires and tubes under a separate group company.