Tata Steel’s three greenfield projects have witnessed a cost escalation of over 50 per cent, or nearly Rs 35,000 crore, according to a recent report of global financial firm Credit Suisse. The new projects in Jharkhand, Orissa and Chhattisgarh have been delayed 2-3 years due to land acquisition problems, in line with other mega steel projects announced by global giants such as ArcelorMittal and Posco.
Tata Steel, the world’s sixth largest steel-maker, had proposed to add 23 million tonne (MT) capacity through these three projects with a total investment of around Rs 68,000 crore.
About Tata Steel’s project in Jharkhand, the Credit Suisse report said, “The initial reported capex is $800 per tonne for the 12MT plant. However, the capex at today’s prices for a greenfield plant is much higher. Therefore, we estimate that the cost overrun in the project could be more than 50 per cent.”
The Jharkhand and Chhattisgarh projects, which were to be completed by 2012 and 2015, respectively, have been delayed by 36 months while the Orissa project has been delayed by 24 months from the deadline in 2013, according to the report.
“With the delays, the total expenditure would escalate to over Rs 1,00,000 crore as the construction cost shot up to $1,000 a tonne from $600 a tonne when the company announced the projects. Surging steel prices, equipment and construction costs and land value are the key reasons for the escalation of expenditure. If the projects are delayed further, it will be tough for steel firms to complete announced capacity additions. Moreover, the companies have to sweat a lot to tie up for huge investments in the wake of the credit squeeze,” said a Mumbai-based analyst.
An email sent to Tata Steel did not elicit any response.
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The steel projects of ArcelorMittal in Jharkhand and Orissa have been delayed by 2-3 years due to land acquisition delays, which pushed its capital cost by 50 per cent. Steel tycoon LN Mittal-promoted company had estimated to invest about $18 billion in these projects. In the current situation, the company will have to spend an additional $9 billion for the completion of the projects, said the report.
South Korean steel-maker Posco’s $11.6-billion Orissa project is facing regulatory hurdles along with the issues of land acquisition. Indian companies including JSW Steel, Jindal Steel and Power will also have to stretch their investments by about 50 per cent to complete their proposed projects.
According to the report, about 18 of the 34 mega projects in the field of power, petroleum, transport and real estate are stuck due to land problems.
In September 2005, the Tatas had signed a memorandum of understanding (MoU) with the Jharkhand government for its plant at an investment of Rs 42,000 crore. The Tatas submitted a detailed project report two years back, the state government has only now finalised a resettlement and rehabilitation (R&R) package for land acquisition.
The report said, about 60 per cent of the families have been shifted from the plant location at Kalinga Nagar in Orissa. The 6-MT plant, which was envisaged in 2004 at an investment of Rs 15,400 crore, is expected to be completed by 2011.
The opposition from tribals have delayed the project. On January 2, 2006, at least 14 tribals and a policeman were killed when police opened fire to disperse a group of tribals who had gathered to protest against the construction of a boundary wall of the proposed plant. In July 2008, Tata Steel Managing Director B Muthuraman reportedly said, “We will start construction of the plant at Kalinga Nagar soon.” He said the company had already procured equipment and machineries worth Rs 6,000 crore from Germany, China and other countries.
The first phase of the 5-MT Chhattisgarh project was to be commissioned by 2011 and the second phase by 2015. Bacause of the delays in land acquisition, the cost may increase from Rs 10,000 crore to Rs16,000 crore, said the report.