Sponge iron units send SOS for coal supplies

Iron ore linkage sought fallowing input cost surge

The sponge iron plants in Orissa, gasping for life due to short supply and escalation in prices of coal and iron ore, have pleaded for immediate steps to ensure supply linkages of these two key inputs to tide over the crisis.

Orissa is currently the largest producer of sponge iron in the country with 58 units already in operation in this sector while 28 more are under various stages of construction.

Most of these plants have come up in last three years taking advantage of the steel sector boom. Sponge iron is used as an input for making of steel and acts as a substitute for scrap.

The total annual production capacity of these plants is estimated at 6.9 million tonne involving a capital investment of Rs 2,875 crore.

The sponge iron units provide direct employment to 46,000 persons and indirect employment to another 69,000 persons.

Besides, the industry annually contributes about Rs 483 crore to the state exchequer and Rs 1,112 crore to the central exchequer by way of taxes and duties.

However, due to short supply and sharp rise in the prices of coal and iron ore, these units are in dire straits.

Though sponge iron plants, by virtue of being core sector units, are entitled to get coal at regulated fixed price, they are denied the benefit due to lack of grant of linkages by the authorities, says G S Agrawal, chairman of the Orissa Sponge Iron Manufacturers Association (OSIMA).

As a result, while the regulated price of F grade coal is Rs 656.50 per tonne, the sponge iron units are buying it at Rs 2065.09 per tonne through open sale scheme. In most of the cases the Union steel ministry has recommended for grant of coal linkages to sponge iron units.

But the coal ministry, the Coal India Ltd and Mahanadi Coalfields Ltd (MCL) have not taken a decision on this for last two years, he pointed out. Similarly, the prices of iron ore have been raised by about 500 per cent during the last three years by mines owners including PSUs like Orissa Mining Corporation and Orissa Mineral Development Corporation (OMDC).

At present the price of iron ore lump rules at more than Rs 1,500 per tonne. The result: the sponge iron plants are facing difficulty to compete with the steel producers having captive iron ore mines where raising of minerals cost only about 35 per cent of the present selling price.

Agrawal said, the existing sponge iron plants of Orissa require 17 million tonne of iron ore lump and 13 million tonne of coal annually. Calculating their requirement for next 30 years, they require coal deposit of 390 million tonne and iron ore deposit of 510 million tonne.

In this backdrop, Agrawal appealed the Orissa government to move the Union coal ministry for grant coal of linkage to all the sponge iron plants in the state from Mahanadi Coalfields Ltd immediately. Pending finaliSation of linkages, ad hoc allotment of coal may be made to tide over the present crisis.

Besides, MCL may be asked to release at least 5 lakh tonnes of coal every month regularly under open sale scheme, he added.

He urged the Union coal ministry to allot coal blocks with proven reserves of 390 million tonne in favour of OSIMA for use by its members. Similarly, he said, the steel and mines ministry of Orissa may allot iron ore mines with deposit of 510 million tonne in favour of OSIMA for captive use by its members.

The mines will be operated by reputed mining company on behalf of OSIMA. Pending allotment of captive iron ore mines, the mine owners may be advised to sell iron ore lumps and sized ore to sponge iron plants of Orissa at reasonable prices, Agrawal pleaded.

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Fuel crisis

• Though sponge iron plants, by virtue of being core sector units, are entitled to get coal at regulated fixed price, they are denied the benefit due to lack of grant of linkages by the authorities
• While the regulated price of F grade coal is Rs 656.50 per tonne, the sponge iron units are buying it at Rs 2065.09 per tonne
• In most of the cases the Union steel ministry has recommended for grant of coal linkages to sponge iron units. But the coal ministry, the Coal India Ltd and Mahanadi Coalfields have not taken a decision on this