Foreign steel companies face huge FDI burden

Global steel giants, which intend to set up production facilities in India, may require to bring in foreign direct investment (FDI) of at least 85 per cent of the project cost.

According to draft recommendations of the expert committee on national guidelines on iron ore mining, an international steel company should chip in at least 85 per cent of the project cost, excluding land, for setting up a new unit. The investment should come through a widely held Indian public limited company.

The draft recommendations also suggest that the phased iron ore requirements for 25 years of a greenfield integrated steel plant with a capacity of 10 million tonne a year should be commissioned within seven years.

Industry experts said the recommendation, if implemented, would call for setting up an Indian subsidiary by a global steel company. The promoters of the subsidiary would later dilute their stake at the time of listing.

A member of the committee declined to elaborate on the issue. He said he won't comment before the recommendations were made public. He hinted that the panel might publish the recommendations on Monday.

The panel also suggested that foreign companies should be allowed to "free export" iron ore, an important raw material for steel making, to facilities outside India. Nor they will not even be allowed to swap iron ore.

Experts said the government might impose some restrictions on free export of iron ore. Either, the some lower grades ore, which are abundant, might be allowed to export, or the global giants might be asked to export value-added ores.

Sources close to the panel said the representatives of the Orissa government were in favour of swap of iron ore. The majority of the panel opposed the idea to to permit export on the ground that it will open "undesirable situation."

The managing director of a large private company reportedly argued that all exports of iron ore should be stopped immediately. He said the country's plan was to produce 110 million tonne of steel by 2019-20 and 300 million by 2050 for which it had barely adequate reserves.

He also opposed entry of foreign mining companies. Some members of the panel argued that there would be no objection to import of iron ore by the steel company for improvement of blending. "This (import) will help to conserve Indian ore," they added.