The low availability of natural gas in the country is taking its toll on the gas-based sponge iron industry. The industry, with an estimated investment of Rs 70,000 crore, is facing losses of Rs 2,500 crore annually with unutilised investments of Rs 10,000 crore.
Of the total sponge iron industry in the country, 30 per cent uses natural gas as feedstock with no alternative. Of the total requirement of 7.74 million standard cubic metres per day (mscmd) of gas, the industry is getting 1.93 mscmd.
Essar Steel, JSW Ispat and Welspun Maxsteel have a combined annual production capacity of 9.5 million tonnes per annum of sponge iron. Essar Steel confirmed the low supply and subsequent losses the industry is bearing, while JSW Ispat and Welspun Maxsteel did not reply to the queries from Business Standard.
| CRUNCH TIME | |||
| Name of the plant | GLC allocation | Revised GLC allocation | Process gas requirement |
| Essar Steel | 3.11 | 0.76 | 5.50 |
| Ispat Industries | 1.35 | 0.75 | 1.34 |
| Welspun Maxsteel | 0.90 | 0.42 | 0.90 |
| Total | 5.36 | 1.93 | 7.74 |
| Source: Sponge Iron Manufacturers Association, Figures in mscmd; GLC: Gas Linkage Committee | |||
“More than 60 per cent of the gas-based sponge iron capacity in the country is impacted. The gas-based sponge iron industry faces Rs 2,500-crore loss,” an official spokesperson of Essar Steel replied to Business Standard.
“Given the gas policies, the future of the Indian steel industry is very bleak,” said Deependra Kashiva of the Sponge Iron Manufacturers Association.
The Federation of Indian Chambers of Commerce and Industry (Ficci) has also written to the ministry of steel to ensure the pre-committed supply of gas for the existing investments.
“Any further reduction in gas supply would force the closure of these units, as it is not viable to import natural gas,” the letter said, adding the sponge iron units are getting just 30-35 per cent of the allocated amount.
According to industry officials, while domestic gas constitutes about 25 per cent of production cost, imported LNG raises the component to around 45 per cent.
The sponge iron sector was allocated 5.36 mscmd of Administered Price Mechanism (APM) natural gas by the gas linkage committee and received the gas for several years.
Later, in 2007, an empowered group of ministers (EGoM) was formed by the government for commercial utilisation and pricing of the New Exploraton Licensing Policy (NELP) gas. The same quantity was allocated from the RIL Krishna-Godavari D6. This supply was reduced to 1.93 mscmd due to allocations to the priority sectors of fertiliser and power.
“We feared the EGoM would cut even the current supply, but status quo was maintained in its recent meeting,” Kashiva said. About 40 per cent of the steel produced in the country is through sponge iron.
