Transport costs temper steel

At last month's foundation stone laying ceremony of the Indian Iron & Steel Company's project in Burnpur, West Bengal, Prime Minister Manmohan Singh wondered aloud: "Why does Lakshmi Mittal, or Ratan Tata, have to buy foreign companies to establish global presence and expand steel capacities when our per capita consumption of steel is so low and there is so much opportunity here?"

The reason could be that steel projects in India tend to trip over acquisition of land and mines, and high transport costs, which threaten to hit the bottomlines in the long run. Sample this.

It costs $50 per tonne to transport steel from Mumbai to Kolkata, via land. For the same amount, using the waterway, you can take it from Mumbai to the US. If your destination is Europe, the cost will be $10 less. And you can take it to South East Asia for only $35 a tonne.

These issues stare steel companies in the face even as they "" multinational as well as domestic companies "" have bet as much as Rs 2,30,000 crore on India.

Industry representatives pointed out that even the major steel companies have been in the past forced to operate at the regional level because of the high transportation costs incurred on both the available routes, rail and road.

Analysts say there is ample scope for growth in the domestic market, if only the bottlenecks could be cleared.

The bottlenecks are both at the state as well as the Centre's level. Says T Mukherjee, the deputy managing director (steel) of Tata Steel: "Land acquisition has become a major problem. For mega projects, the Union government should lend some support."

South Korean steel major Posco signed a memorandum of understanding to set up a steel plant in Orissa in June 2005. It is yet to get land for the project, which has already fallen six months behind schedule.

Tae Hyun Jeong, the deputy managing director of Posco India, said the company had got sanction for 1,135 acre, although its requirement was nearly three and a half times of that. However, undaunted, the company still hopes to meet its target of producing 4 million tones a year by 2010Z, provided it gets all the land by June this year.

Then there is the issue of mines, which is fast becoming synonymous with controversy. More than 150 MoUs have been signed in the mineral-rich states and the companies are awaiting mining lease rights.

Analysts say that, to maintain the attractiveness of the country as an investment destination, the government would do well to ponder over the Prime Minister's question.