The ore's the issue

A lot has been said on how the non-availability of large tracts of land is holding up the setting up of mega projects in India. In Orissa alone, as this newspaper has reported, projects with a capital investment of around Rs 180,000 crore, and with an employment potential of 170,000, are getting delayed since, of the 40,000 acres of land that these projects require, just a fourth has been made available so far. Agitations by non-governmental organisations and local representative groups have ensured that the land is either not available for sale, or that those who are squatting on the land refuse to vacate. In the case of Posco's proposed 12-million-tonne steel plant, which is said to be India's single largest foreign investment project, no more than 450 families are holding up the land acquisition. It is also true that villagers who have got wise to the economics of the situation are now asking for a king's ransom for their land "" in Paradip, for instance, land prices were Rs 1-2 lakh an acre when Posco and Essar announced their projects; they have now gone up to the region of Rs 6 lakh while villagers in some areas are demanding Rs 40 lakh! Reports suggest that compromises have been offered at Rs 25 lakh per acre, or more than Rs 500 per square yard in the back of beyond. More reasonably, a deal can probably be arrived at somewhere between Rs 6 lakh and Rs 25 lakh.

Exorbitant as this is, and perhaps unreasonable too, the truth is that even such sky-high land prices do not make these large projects unviable. Take the 30,000 acres of land that the Orissa projects need. If you take the price of land at Rs 10 lakh an acre, the total cost of the land is Rs 3,000 crore. That is not small change, but seen in the context of the projects' total cost of Rs 180,000 crore, it should be easy to finance and amortise. So, the cost of land is not the deal-breaker, which in reality is the availability (or otherwise) of captive ores. In the Posco project, the company stands to get access to 600 million tonnes of quality iron ore over 30 years; the figure is around the same for the Mittal steel plant; the Vedanta aluminium project hopes to bag a huge bauxite reserve.

Few places in the world allow such dedicated control over raw material, at what may well be concessional terms "" and politicians are said to be doing mining deals all the time in the mineral-rich states. It is precisely because of this that firms like Posco and Mittal Steel are willing to wait it out, despite not being able to get possession of the land for a year and more "" during which period the cost of delay has certainly been more than Rs 3,000 crore if you consider project cost inflation. In the days when it had not honed down its costs, Tata Steel still managed to be among the cheapest producers of steel almost wholly because of the quality iron ore mines that Jamshetji Tata had negotiated more than a century ago. The lesson here is for state and central governments "" do not under-estimate the attractions offered by India's mineral deposits. Formulate clear lease and price policies before offering mining leases, and make sure that no one walks away with sweet deals.