The Hindu Business Line : Vizag Steel's captive ore plan in limbo

CAPTIVE ore linkage seems to be avoiding Vizag Steel with some consistency. For one, the Orissa Government has turned down its request for a captive block.

The chances are that the Chhattisgarh Government too will follow suit. And now the Union Government has decided to merge IISCO with SAIL.

The merger decision had in effect reversed the NDA Government's "in-principle" approval to Vizag Steel in early 2004 for developing a part of the ore reserves under IISCO and establishing a virtual captive linkage for itself through long-term buy-back contracts.

Responding to the ore crisis faced by the company last year, the Steel Ministry under Mr B.K. Tripathy suggested that Vizag Steel could jointly (with SAIL) develop parts of ore blocks under the control of the cash-strapped IISCO.

No formal order was passed and the exercise was supposed to have been taken up in agreement with SAIL, the parent of IISCO.

Vizag Steel had then drawn up a Rs 500-crore investment plan for development of parts of blocks under IISCO. Being largely dependent on NMDC for ore supplies, the company today coughs up perhaps the highest price for raw material among the leading integrated steel plants.

As per present day prices, the company sources ore at a base price of Rs 460 per tonne. The comparative price of SAIL, which has captive mines, is Rs 340! That for Tata Steel is believed to be even lower.

Irrespective of the enthusiasm of Vizag Steel, the idea of sharing ore from IISCO mines did not seem to find much favour with SAIL from the very beginning. "We communicated to them the proposal for joint development of mines in early 2004, but SAIL preferred to postpone discussions on the issue, referring to its bid to modernise IISCO," says chairman of Vizag Steel, Mr B.K. Panda.

However, a SAIL official said: "By then we had announced our plans for modernisation of IISCO and a part of the proceeds were also directed to the development of mines. We had also invited tenders for mine development. It was, therefore, logical to postpone discussions on the issue". The official added: "With a merger in the offing, such proposals do not hold water any longer."