Hit by 20% appreciation in dollar

Substantial cost escalations are set to hit Tata Steel’s upcoming Kalinganagar project in Jajpur district in Odisha.

A company official said the extent of cost overruns was currently being assessed and that clarity would emerge soon.

Tata Steel had signed an MoU with the Odisha Government in 2004 for the two-phase, six million tonne project. At that time, the project cost was estimated at Rs 35,000 crore.

Though it won over local resistance against the project, located in costal Odhisha, it is facing time overruns and additional costs.

Dollar cost

“Social costs apart, rupee depreciation and change in State taxes have inflated the project cost,” said Anand Sen, the person in-charge of the Kalinganagar project.

Among the un-envisaged cost elements, fluctuation in rupee against dollar could contribute most to the upward revision in the project cost, he indicated. The original project cost was estimated at Rs 43 to a dollar, Sen added.

Since the greenback value shot up by well over 20 per cent in the intervening period, the cost of dollar-denominated supplies of project components went beyond estimates.

Sources told Business Line that around 60 per cent of the orders for the auto-grade steel greenfield project components have been placed.

“The majority of these are in dollar-terms,” a source said. Sen said the first hot-rolled coil might emerge from the project early in the second half of 2014. Currently, erection work on the blast furnace, two 7.6-metre coke oven batteries, two converters in the steel melting shop and a hot strip mill are ongoing.

Raw material uncertainty

Tata Steel, which has made several applications for captive iron ore deposits linked to the project in the State, is awaiting a clear signal for the allocation.

“We are moving ahead with the project, hoping we will get mining assets ascribable to Kalinganagar project. Our present licences are adequate for the brownfield capacities,” Sen added.


(This article was published on November 12, 2012)
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