The Hindu Business Line : Steel: Expansion plans power ahead while... <br> The logistics of movement chugs along

Steel majors plan huge production increases in the next five years, but are the facilities in place to transport the raw materials and finished products?

IF THE reports doing the rounds are any indication, the steel sector is poised for significant growth in next few years but a question that haunts many in the steel circles is: Will the transport and logistics sectors too keep pace to meet the impending challenges?

This is important because increased steel production has to be supported by a solid transportation network, both for inward movement of raw materials and outward movement of finished products. As the situation stands now, a clear picture of the shape of things to come on the transport front is yet to emerge.

Reports have it that SAIL is to augment its production to 20 million tonnes (mt) by 2010-11. Several private sector steel companies too are mulling expansion of capacities of their plants. Tata Steel is set to double its production to 8 mt, Jindal Vijaynagar Steel Ltd to 8 mt from two mt, the Essar Group from three mt to six mt and Ispat Group from 2.5 mt to six mt. A few smaller companies too are emerging on the scene with expanded capacity, such as Nilachal Ispat and Bhusan Steel. Capping it all are the secondary producers.

By far the biggest investment in the steel sector is likely to be made by the foreigners. BHP-Billiton of Australia has joined hands with Posco of South Korea to set up a 10 mt capacity plant in Orissa with an estimated investment of Rs 39,000 crore.

If all these projects, both new and expansion, progress as per schedule, steel production in next five years will rise to an estimated 70 mt or so from around 35 mt now.

Except perhaps the BHP-Posco plant, whose promoters perhaps have a clear idea of how they propose to go ahead with the project, the issues relating to transportation of raw materials as well as evacuation of finished products are yet to be satisfactorily resolved in respect of many other plants.

It was earlier reported that the Tata group, in partnership with L&T, are keen to the develop Dhamra port in Orissa. We now hear that the BHP-Posco too has evinced interest in developing the same port for their captive use.

In fact the BHP-Posco steel plant project also envisages the development of the Dhamra port to be complete with 25 mt capacity and a 62-km long railway network connecting the port with the network of the Indian Railways. The facilities of the port would be used also to export 10 mt of iron ore and import eight mt of coking coal.

According to a rough estimate, to produce one tonne of steel, at least three tonnes of raw materials, some from domestic sources and others imported, are required to be moved into a steel plant. Even leaving aside the BHP-Posco project, other steel plants together will need to move about an additional 70-75 mt of raw materials to meet the increased requirement of their projected capacity expansion.

SAIL, for instance, will need to move an additional seven mt of imported coking coal through the three east coast ports of Vizag, Haldia and Paradip — an estimated 14.5 mt in 2010-11, compared to present seven mt. The question, therefore, is: are these ports really preparing to handle the projected additional volumes.

More important, will the required connectivity, preferably railways, between the ports and the steel plants be in place by that time?

Even the issue of movement of raw materials from domestic sources can be crucial. For example, the Dalli-Rajhara ore mines. As the reserves of these mines are getting exhausted, there were proposals to open up new mines. Have those new mines been identified?

If so, what will be the connectivity between the mines and the Bhilai steel plant, which is linked to Dalli-Rajhara and whose capacity is being expanded from the present five mt to seven mt.

The expert group of the RITES, now studying the transportation requirement of the Bhilai steel plant in the coming years, will hopefully address these issues. Next, the question of evacuation of finished products.

The public sector steel plants by and large depend on the Railways both for inward movement of the raw materials and outward movement of finished products. But if the accent of the expansion is on the production of more of value-added products in smaller parcels, then road transportation might gradually account for the larger share of the cargo than at present, as is now the case with many private sector steel plants.

Whether, especially from the point of environment protection, such a policy is prudent is another matter. For example, very large quantities of iron ore for exports through Paradip are transported by roadways to the port. Apart from throwing up environment and congestion problems, such movement raises a vital issue: Is it wise to burn a costlier fuel to carry a cheaper material?

Earlier, it was felt that the rehabilitation and strengthening of the existing highways under the NHDP will boost road movement vis-à-vis rail movement. With the change in the political scenario, the work on NHDP, it is reported, is now on a low key. Larger evacuation of steel products by rail will need more flats (flat wagons) and may certain other types of specialised wagons. One hopes that the Railways has done the necessary homework in this regard .

Some of the private sector steel plants are believed to have already initiated dialogue with the Railways. For example, the Tatas, it is learnt, have made presentations before the Railways giving future projections of production, raw materials movement and evacuation of finished products. JVSL, through a subsidiary company, has already acquired two berths in Mormagao port.

The company currently imports its entire requirement of coal from Australia. The requirement will go up as and when the capacity expands. But the JVSL authorities are not unduly worried. There is enough berth capacity to handle the projected increased volume of traffic.

The 400-km long railway network, constructed by the Railways between the port and the JVSL's plant, now remains grossly underutilised. The capacity expansion will only boost the level of utilisation of the network now used virtually as the captive facility for the steel plant.

The expansion of RINL (the Vizag steel plant ) capacity from the present 3.5 mt to five mt by 2007-08 and 10 mt subsequently will call for doubling of the the 446-km long Kottavalasa-Kirandul line currently used for transport of iron ore from the Bailadila mines to the plant. Right now it is single-line network and any dislocation on the route cripples the entire movement.

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