To ink JV with RINL for Rs 630 cr plant.
KIOCL Ltd, a 100 per cent export-oriented unit under the ministry of steel and mines, is embarking on a forward integration plan by setting up a ductile iron spun pipe (DISP) plant as a joint venture with Rasthtriya Ispat Nigam Limited (RINL), the flagship company of Visakhapatnam Steel Plant.
Both companies together have firmed up an investment plan of Rs 630 crore for setting up the DISP plant with a capacity of 100,000 tonnes per annum, a coke oven battery of 300,000 tonne capacity and a 27-Mw gas-based captive power plant as part of its backward integration at Mangalore, a top official said.
“Both, boards of KIOCL and RINL, have agreed on a project funding basis jointly. We will form a special purpose vehicle with a 50 per cent equity each. We expect to invest Rs 330 crore for DISP plant and Rs 300 crore for coke oven battery and captive power plant,” K Ranganath, chairman and managing director, KIOCL told Business Standard.
He said, presently, the cost of manufacturing pig iron is Rs 32,000 per tonne and of ductile iron spun pipes around Rs 45,000 per tonne and the selling price in the market is around Rs 58,000 per tonne. With 100,000 tonnes per annum production, the KIOCL hopes to make a profit of Rs 130 crore in the first year of its operations, he said.
The plant will be commissioned over a period of 18-24 months from the date of the commencement of construction. The proposed plant will utilise the superior quality pig iron that has low phosphorus and low sulphur, which is already being produced by the company.
The funding will be met by the internal accruals of KIOCL, Ranganath said, adding the company presently has a cash reserve of Rs 1,200 crore.
Earlier, the KIOCL had floated global tenders for this project twice in the last two years and on both occasions, Larsen & Toubro had emerged as the L1 bidder. But the company decided to drop the plan of going with the private player to build the DISP plant, he said.
“The main reason for dropping the earlier plan was purely on the grounds of the high cost involved in it. At this juncture, when we don’t have captive iron ore mines, we did not want to invest a higher amount. The proposed JV requires us to invest only Rs 150-175 crore as equity, which works out better for us,” Ranganath said.
He said, the company would form a separate company to take up the project with RINL. Apart from selling the ductile iron spun pipes in the domestic market, the JV company will also export to the European countries as there is a big demand for it there. The demand-supply gap in ductile iron spun pipes is expected to be 2 million tonnes by 2014 according to an Ernst & Young study.
“We already have a captive jetty at New Mangalore Port and it will be cost effective for us to export our products,” he said.
Ductile iron spun pipes are used in most countries because of its superiority over cast iron spun pipes. Even in India, there is a huge demand for spun pipes from various state governments and urban development bodies. They are used in irrigation projects, drinking water supply and sewerage projects, and other large infrastructure projects.
