Essar Steel has commissioned a six-million-tonne-per-annum (mtpa) pellet unit at Paradip in Orissa, in the first phase of the 12-mtpa plant to be ready by 2013. Once completed, the facility would be India’s largest pellet plant. In January, it had completed the expansion of its Hazira facility, making it the country’s largest single location flat steel maker with 10 mtpa capacity. Shubhashish spoke to Essar Steel’s managing director and chief executive, Dilip Oommen, and chief financial officer, Amit Agarwal, about the pellet plant and the slurry pipeline connecting it, and risks to the company’s Kirandul-Vizag pipeline from insurgents. Edited excerpts:
With the completion of expansion at Hazira, is the toughest part of Essar’s mega expansion plan over?
Oommen: By the end of June, when we commission our slurry pipeline, the toughest part will be over. Some titbits like the actual beneficiation plant will remain. We are waiting for some land clearances. These are projects to reduce costs rather than anything else. From the technical point of view, the Hazira complex was more difficult. But in terms of clearances, it was simpler. In Orissa, it has taken more time.
But isn’t pellet a high-cost business? During downturns in the steel industry, such plants are the first to be shut down.
Oommen: Once you get the fines, what do you do with those? Either pelletise or use in sinter. Or, there are some newer processes today that are using fines to convert those into iron. But why should a pellet plant be really a waste? Already, we are getting so many calls from interested companies who want to buy our excess pellets. Since we are short of pellets as of now, we have said no. But yes, you are right. Usually, $30 per tonne is the world benchmark for pellet production, and ours is lower.
You will be producing 20 mt of pellets by 2013, but your need is 15 mt. So, the excess will be sold in the open market?
Agarwal: It’s an attractive proposition to sell the pellets, either in the domestic or export markets.
Oommen: The primary objective is to make sure that the investments don't go waste. Securitisation of raw materials for the Hazira plant is of prime importance. It is always good to have extra capacity than run short. If there is extra production beyond the requirement of Hazira complex, yes, it’ll be sold.
Your slurry pipelines have been in focus for a long time. These have been rendered useless by insurgents on a couple of occasions. How would you secure the Paradip pipeline?
Oommen: There are two slurry pipelines. One is from Kirandul to Vizag, which has been attacked by insurgents. We have mitigated risks to a certain extent by moving the material by rakes. Also, we have put up some facilities like additional pressure filter in Vizag to bring the capacity of the pellet plant quite close to the total capacity, even without the slurry pipeline. As far as the Orissa one is concerned, what have we learnt? One is we have laid the pipeline closer to highways, so that it’s more accessible. Two, we have set up a grinding facility in Paradip. This means if there is an interruption in the slurry pipeline, pellets can still be produced by getting fines to Paradip up to a capacity of four mt.
What is the insurance premium for your Vizag pipeline? Has the premium gone up for the Paradip pipeline because of insurgency?
Agarwal: These insurances are done on certain risk matrices, which change depending upon what has been happening around the country. The Kirandul-Vizag pipeline goes through forests. That is not the case with the Dabuna-Paradip pipeline, as it is easily accessible and safer. We are not paying insurance premium for the second pipeline, as it is under construction. We are at the negotiation stage.
What are your plans for captive iron ore mines?
Oommen: We don't have captive iron ore mines. We are dependent on NMDC. It takes care of the eight-mt requirement at Vizag. As far as Orissa is concerned, we have tied up with private miners. Also, we have applied for mines.
Agarwal: We have got prospecting licences (PL) for mines in Chhattisgarh and Jharkhand.
Oommen: We’ll focus on the mines for which we have got PL, especially in Chhattisgarh. We are working on it. Obviously, there are issues in Chhattisgarh because of insurgent issues. We are working with the state government, which is coming a long way to help us.
Is Essar Steel profitable?
Oommen: Yes.
Agarwal: When all expansions get complete in 2012-13, we’ll see a big drop in costs. And, we will have an entire range of products to sell. With that entire range of products, we’ll make significant earnings before interest, taxes, depreciation, and amortization (Ebitda). We’ll be at the lowest or the first quartile producer of steel. We will be making an Ebitda of at least $130-140 a tonne.
