Unarguably, the biggest challenge for a large steel group with ambitious growth plans is to secure uninterrupted raw material supplies, as close to full requirements as possible. This holds true as much for our own Steel Authority of India (SAIL) and Tata Steel, as for the Chinese steelmakers. The more recent behaviour of coking coal prices, particularly in the wake of rains and floods in Australia’s Queensland and, earlier with iron ore, have cemented the resolve of steelmakers across continents to acquire natural resources assets wherever available.
No wonder SAIL chairman C S Verma is keen to lead a consortium of Indian steel and mining groups, drawn from public and private sectors, to bid for a large find of quality iron ore at Hajigak in Bamiyan province of Afghanistan. Geologists, first from Russia and then from the US, have confirmed ore deposits of 1.8 billion tonnes in the region, with iron content of up to 63 per cent in 16 spreads, all amenable to open pit mining. Chances of India finding access to Hajigak deposits look encouraging, for 14 of the 22 companies shortlisted by the Afghan authorities for conferment of mining rights are Indian.
Verma’s enthusiasm to set foot in Afghanistan, where industry angels still fear to tread due to long years of strife, has to do with New Delhi’s commitment to participate in the reconstruction of the country. India, the largest regional donor, is making important contribution to capacity-building in Afghanistan, such as the construction of the Zaranj-Delaram road which will give the landlocked country access to the Iranian port of Chabahar. Being a leading public sector undertaking as the ‘Maharatna’ status underlines, it devolves on SAIL to find out in what ways it could partake in New Delhi’s Afghan initiative.
It is only now — many years after China started scouting for all kinds of minerals across continents to secure its future requirements — that India has made known its intentions to play a meaningful role in resource diplomacy. This, particularly, found expression during Prime Minister Manmohan Singh’s recent visit to Africa. The lesson to be learnt from China is to win favours from poor, but resource rich countries. The prospecting nations should make available lines of credit on easy terms for infrastructure building.
While SAIL will try to maintain leadership in the domestic steel market through vigorous capacity expansion, it has announced its intentions to seek global production footprints. Afghanistan with its good iron ore and coal deposits offers an opportunity to the company to build an offshore steel production base. Logistically as well as commercially, the best thing to do with the iron ore available in Afghanistan will be to use it locally to make steel. What will allow cost-effective making of steel in the landlocked country is the local availability of coking coal.
“Afghanistan, as it starts rebuilding itself, will annually need five million tonnes of steel, and I have proposed building a three-million tonne mill there at an investment of $3 billion. What I’m proposing to do falls in line with the Afghan plan of vertically integrating iron ore and coal mining with steel making,” says Verma.
Afghanistan does not figure in the World Steel Association list of producing countries, though in recent times, it has commissioned a couple of tiny steel units. Therefore, in the event of Verma’s plans coming through, marketing of steel in Afghanistan will not be a problem. In the first place, Verma will have to secure from the Afghan authorities the security of the people to be engaged in building the mill, and then, its running.
The leadership of the International Coal Ventures (ICVL) vesting with SAIL is proving to be a boon for the steel major’s global ambition. Most countries with mineral resources would welcome foreign entities to explore and mine deposits, provided some major value addition is done locally. Earlier in January, Verma on behalf of ICVL, signed a Memorandum of Understanding (MoU) with the governor of Indonesia’s Central Kalimantan province for development of coal and iron ore mines, processing of minerals and building a steel plant using local minerals. What sweetens a deal of this kind is the promise of local minerals processing up to steel and creating support infrastructure. China’s success in leaving the US behind in winning access to natural resources in Africa, including the most disturbed regions in the continent, is its engagement in building infrastructure.
The ICVL MoU with Central Kalimantan has been structured enough to make it a win-win formula for both parties. Verma will have access to enough coal and iron ore in Indonesia to support a three million tonne steel mill, based on a single large blast furnace. SAIL makes it clear that in any steel joint venture, here or abroad, it will stay in charge of management. But the distinctive feature of ICVL’s Indonesian foray will be that after meeting the proposed Indonesian steel mill’s requirements of coal, coking and thermal, the surplus fuel can be brought back here. One hopefully has not heard the last of SAIL wanderlust.
