Posco, SAIL join Rs 590 cr Paradip rail SPV

South Korean steel major Posco and Steel Authority of India (SAIL) are among the nine companies that have confirmed their participation in the Rs 590-crore special purpose vehicle (SPV) for development of the 78-km Paradip-Haridaspur railway line in Orissa.

The shareholders' agreement for the SPV is expected to be signed shortly. In May last year, the Orissa government had signed a memorandum of understanding (MoU) with five parties, including the Rail Vikas Nigam Ltd, a subsidiary of the Indian Railways, for the formation of the SPV.

Subsequently, considering the favourable rate of return "" the return on investment is predicted at about 22 per cent "" Posco, SAIL and MSPL Ltd had offered to join the consortium.

Posco is expected to benefit from the railway line as it will reduce the distance between its proposed port at Jatadhari and its prospective mining site by 40 km.

"The decks have been cleared for the signing of the shareholders' agreement for the SPV which will manage logistics in a cost-effective way," said a RVNL official.

The SPV will be led by RVNL with an equity of 48 per cent, while Posco-India Private Ltd, the Indian subsidiary of Posco, has agreed to pay Rs 27.5 crore to pick up a 10 per cent stake.

The other participants include Paradip Port Trust (10 per cent), Essel Mining Industries Ltd (EMIL, 10.91 per cent), Rungta Mining and Industries Ltd (10.91 per cent), MSPL Mining (5.45 per cent), Jindal Steel and Power Limited (1.82 per cent), SAIL (1.82 per cent) and the Infrastructure Development Corporation of Orissa (0.66 per cent). The debt-equity ratio of the project is pegged at 1:1.

The SPV will have an equity base of Rs 275 crore, and its board will have 11 directors, out of which six will be from RVNL.

The proposed rail line will be a crucial link for transport of raw materials such as iron ore, coal and imported coking coal and finished goods to and from the steel hub at Duburi in Jajpur district where a number of steel projects are proposed to be located. Though the line was sanctioned in 1996-97, work on it has not progressed much due to fund constraints.

The project, to be developed on build, operate and transfer basis, will provide an alternative rail link between Cuttack and Paradip and is expected to be operational by March 2008.

Sources said 70 per cent of the land for the rail line had been acquired and handed over to East Coast railway.