The steel industry doesn't make much of a splash anymore. The award of a massive contract worth over Rs 2,000 crore - only slightly less than half the IMF loan that has created so much fuss - to a British firm for the Paradip steel plant has gone largely unnoticed.
Jay Dubashi
ISSUE DATE: Nov 15, 1981 | UPDATED: Oct 30, 2014 12:58 IST
Viren Shah: scope for midi plants
The steel industry doesn't make much of a splash anymore. The award of a massive contract worth over Rs 2,000 crore - only slightly less than half the IMF loan that has created so much fuss - to a British firm for the Paradip steel plant has gone largely unnoticed.
Steel plants don't come cheap, which is possibly one reason why India has been able to set up only one integrated plant - Bokaro - in the last 20 years. The long dry spell will be broken by Paradip but the country can do with as much steel as it can produce and Paradip can make no more than a dent in the vast problem of raising steel capacity to 50 million tonnes (from the current 14 million tonnes) by the turn of the century.
For a country of India's size and appetite 50 million tonnes will not take the economy very far. China, which made a late start - it was producing 700, 000 tonnes in 1950 when our own output was over 1 million tonnes - has now touched 35 million tonnes and plans to raise the figure to 100 million tonnes in 20 years' time.
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Japan too was producing less than India immediately after World War II but is now among the top three producers in the world. Countries like Brazil and South Korea, not to mentioningly difficult to operate, calling as they do for a quality of management that the public sector culture is unable to provide.
Most public sector plants are working far below capacity - often as low as 50 per cent - and are perpetually in the red. New integrated plants are expensive with capital costs around Rs 15,000 to Rs 20,000 a tonne of steel and it is doubtful if India can ever afford to set up one without outside aid.
Fixed charges like interest and depreciation alone eat up 50 per cent of the production cost. At Paradip, the fixed charge will be of the order of Rs 3,000 a tonne, an enormous cross to carry for an industry that is supposed to be at the very heart of modernization.
More Scope: If the giant plants are too expensive and the minis too small, has India missed the boat? Not so, says Viren Shah, chairman of Mukand Iron & Steel, which operates one of the most efficient mini-steel plants in the country near Bombay. Shah argues that between the maxis and the minis, there is considerable scope for the midis, both from the point of view of the country's resource availability and technology.
It is now possible, says Shah, to use 'appropriate' technology and replace the traditional co*ke oven - blast furnace - basic oxygen furnace route by a less expensive one. He argues that India should go in for the sponge iron route whereby iron ore (fines, pellets and sinter) can be converted into sponge iron by direct reduction.
There is also a new process tested on a pilot plant scale in which hot metal is produced from fine grained ferrous raw materials using coal as reducing agent as well as the only source of energy. India has vast quantities of poor grade coal - about 21 billion tonnes of known reserve - but not enough co*king coal, some of which is now actually imported. (In fact this is one reason for locating Paradip and other new steel plants near coastal sites).
With the available coal supplies, India can be really self-sufficient in steel production, both in respect of capital (as sponge iron units do not require much capital per tonne of steel) as well as local raw materials.
A mini steel plant near Ghaziabad: appropriate technology
The midi mills, says Shah, can be set up in the capacity range of 250,000 to 500,000 tonnes per year. For higher output, the plants can be duplicated. Large steel plants are cost-effective only when they are operated at high levels of capacity, which is one reason why the public sector steel plants are losing money as their capacity utilisation is very low. The midi steel mills, by contrast can be cost-effective even at lower levels and the economies of scale are not so rigorous.
Another point in favour of midi steel mills, according to Shah, is that they can be dispersed over a wider area and do not have to be confined to the traditional steel belt. Every state - or nearly so - can have a cluster of midi steel plants, and do away with transport over long hauls.
Government Policy:But, assuming that the new technology - not all that new, insists Shah - is commercially proved, who will bell the cat ? Will the Government still insist on exclusive reservation for the state sector in the field of steel-making or will it let the private sector go ahead with midi steel plants up to, say, a capacity of 1 million tonnes, that is four units of 250,000 tonnes each? Most of the sponge iron plants that are now being put up with US and German technology are in what is known as the joint sector.
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There is no reason why they cannot be thrown open to private companies, at least to those-like Modis, Birlas and others-who have come forward with proposals of their own. The steel industry in Britain is in a mess because it did not catch up with new technology and was found operating plants that were more than half a century old.
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Let the Government sit down with private industry - which has always been treated as something of an interloper-and hammer out a new policy. It was Keshav Dev Malaviya who once wanted a thousand mini steel mills to bloom. Why not a hundred midi steel mills - or even a baker's dozen - to start with?
Published By:
AtMigration
Published On:
Oct 26, 2013
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