Monnet Ispat and Energy Ltd, the Rs 2,000-crore Chhattisgarh-based sponge iron and power producer, has committed thousands of crores of investment in new projects. The company is also venturing into steel product manufacturing at a time when demand has refused to take off substantially. The ongoing policy paralysis could, however, spoil efforts to unlock this huge growth potential in the steel sector, Sandeep Jajodia, chairman and managing director of the company, tells Sudheer Pal Singh in an interview. Edited excerpts.
What would you tell us regarding the current perception of policy paralysis within the government, based on your experience?
We have not seen so much negativity in the business environment for a long time. A majority of the bureaucracy has slowed down. Officials are scared of investigating agencies haunting them. Also, the high interest cost of money has made business difficult. From policy paralysis, we are now inching towards policy reversals. The corporates’ confidence in the stability of the economy has been hugely shaken. It is a worrisome situation. Also, the rupee slide has to be arrested.
So, what are the critical issues being faced by steel companies at present?
Basic clearances take years to come through. The clearance process has to be made shorter, logical and quicker. The government has to be clear about how much industrialisation they want, for which land will obviously have to be provided. I can understand the concerns of locals. So, people have to be given adequate compensation. Corporates should be protected from being blackmailed, as they add huge value. Also, raw material security is a huge concern. India is going through a coal crisis which has no light at the end of the tunnel. There are also concerns on auctioning of resources. After a private company wins a (coal) reserve in auction by investing a certain amount, the issue of lack of certainty on when will the block turns productive remains. The government wants to keep prices low and at the same time it’s planning a massive foreign outgo for coal imports. This is an anomaly.
What are Monnet’s plans on raw material imports?
We are not importing any raw material at the moment. But once our 1.5-million-tonne (mt) steel mill is ready, we will have to import coking coal. Thermal coal and iron ore would be sourced locally. We have our own thermal coal mines for power and sponge iron business. A part of our iron ore requirement is currently met from the market. Prices of iron ore, though, have been unrealistically high. There has been a 15-20 per cent rise in prices in the past one year.
So, in the absence of imports, has rupee depreciation not impacted you?
It has not impacted us in terms of revenue. But we have external commercial borrowing (ECB) loans. In fact, rupee depreciation has helped us in two ways. Steel imports have become expensive and this helps to maintain domestic steel prices. Also, imports of raw material have become expensive for our competitors. So, their input cost has gone up further, leading to increased steel prices. However, we are benefited, as our costs are contained on account of our processes being more integrated
Any plan to enter the power market in a big way?
Yes. At the moment, we are selling a small portion of power -- around 100 Mw, generated as surplus in captive plant. We have planned a major power foray, too. We have an independent power producing company, Monnet Power, which is setting up a 1,050-Mw power plant. This will be followed by a 660-Mw plant later. This is an overall Rs 9,000-crore investment. Of this, around Rs 5,000 crore will be invested in the first phase, which will be commissioned by September 2013.
But merchant power prices have remained on the lower side in the recent past. Is that not a concern?
The prices have indeed been very low and it is a very big concern. Power utilities are not buying power and distribution companies are financially unhealthy and, thus, are unable to buy power. We do not see the situation improving soon. While there exists huge demand, a no-demand situation has been created artificially. This is impacting prices.
How do you plan to increase Monnet’s presence abroad?
We think Monnet should have good exposure in the emerging economies, especially in places where mineral assets provide a better opportunity than our country. So, we are looking closely at some countries in Africa and Latin America. We already have a mine in Indonesia, where production should begin by the end of this financial year. Then we plan to increase capacity over the next three-four years to 5 mt. We are looking at other places for coal, manganese and iron ore and coking coal for our steel mills. The search is on and we are assessing properties. Whether we take up equity or seek offtake arrangements depends completely on the mine available. We may completely own a certain deposit through buyout or we can get a mine allotted. We do not necessarily plan to mine raw materials abroad and bring it to India. This will depend on logistics. We can even sell coking coal in the market and buy coking coal at a location near by India.
Monnet is planning to bid for copper and gold deposits in Afghanistan. What is the progress?
We are already part of an Indian consortium bidding for the Hajigak iron ore mines in Afghanistan. We have submitted an expression of interest for copper and gold mines. We are trying to assess the situation and will take a commercial call soon.
What is the investment plan for this financial year?
We plan to invest around Rs 2,700 crore this financial year. Of this, around Rs 700 crore will be invested on our new steel plant, which will be finished by December. The remaining Rs 2,000 crore would go to the power business. This year, we want to commission two captive coal mines. Also, our pelletisation plant will be commissioned by June next year. It’s a 2.4 mt plant, where Rs 500 crore has been invested.
