Financial Daily from THE HINDU group of publications
Wednesday, Apr 03, 2002
Rs 160 cr locked in Gopalpur land acquisition -- SEZ sops bring cheer to Tata Steel
MUMBAI, April 2
THE incentives given to special economic zones (SEZs) in the 2002-2007 Exim Policy has "brought cheer" to Tata Steel which has roughly Rs 160 crore locked up in land acquisition for its erstwhile proposal of a steel plant at Gopalpur in Orissa.
With the steel plant no more a priority, the acquired land became part of the planned Gopalpur SEZ.
According to a company spokesperson, while the sops awarded to SEZs are positive, Tata Steel continues to see itself only as a landowner likely to benefit from land sales should the Gopalpur SEZ take off.
"There is no change to that, so far. SEZ development is not a core area for us," the official said when asked if the Exim Policy announcements were attractive enough to warrant an evolution of Tata Steel's stance to being a co-promoter. "The promoter of the SEZ is the Orissa Government," he said.
In major sops for SEZs, the Exim Policy permitted offshore banking units (OBUs) to be located there, hedging of commodity price risks by resident units on a stand-alone basis and external commercial borrowings (ECBs) of less than three-year tenure in SEZs. While four export processing zones (EPZs) were converted into SEZs, the Government also approved 13 new SEZs, including Gopalpur for which KPMG was preparing the feasibility report.
It was in the early 90s that Tata Steel began scouting for a steel plant location, placed well enough to reduce sharply the cost of raw materials. It is estimated that for every 1 tonne of crude steel produced, approximately 3.5-3.7 tonnes of raw materials are used. Atop this was the reckoning that the ideal initial size of a steel plant would be 2.5 million tonnes, in turn implying an annual handling of 7.5 million tonnes of raw materials and 0.5 million tonnes of finished products.
The company, therefore, sought a coastal location with a port deep enough to host Capesize ships. Since eastern India at that time produced 80 per cent of the country's steel, but accounted for only 20 per cent of consumption, it was decided to locate the plant on the west coast. Fast growing steel markets, too, were then in the west.
But the search spanning Gujarat to Kerala yielded no good location, the entire effort getting dubbed in the media as Tata Steel's search for an "elusive west coast site". It was soon understood that deepwater ports were more on the Indian east coast. The appointed consultant narrowed down on Gopalpur.
Tata Steel spent an estimated Rs 160 crore to acquire some 4,000 acres of land besides creating basic infrastructure. But the Gopalpur project progressed no further. Nothing happened on the port front, which was the onus of the State Government to develop; the same was the fate of the required railway link from mines in North West Orissa to the proposed steel plant.
Amid this delay, the global steel scenario changed, almost to the point of hinting that humanity's need for steel stood fully mapped. It was clear that a greenfield plant would make sense only after all existing global capacities were fully accounted for. Gopalpur naturally slipped to the backburner.
For Tata Steel with Rs 160 crore locked in land purchase for Gopalpur, any positive activity consequent to the incentives for SEZs disclosed in the Exim Policy will be a relief. But the company spokesperson made it clear that "as of now" Tata Steel hopes to benefit only from land sales, it has no desire of being a co-promoter for the SEZ or maintaining any investments, using land as equity, in companies choosing to be at Gopalpur.
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