SAIL Posco project report may be ready by Jan end

The official said that SAIL is likely to concede Posco's demand for a majority stake in the JV.

January 14, 2011 3:01 IST | India Infoline News Service

The detailed project report (DPR) for the proposed joint venture (JV) between Steel Authority of India Ltd (SAIL) and Korean steel maker Posco for a steel plant in Bokaro, Jharkhand, may be ready by the last week of January, said a top SAIL official on condition of anonymity. The official said that SAIL is likely to concede Posco's demand for a majority stake in the JV. "We have to be flexible on the issue of who holds the majority stake," the official said. A senior steel ministry official has independently confirmed this. "The DPR should be ready in 10 days from now," he said.

The two companies plan to set up a 1.5-million-tonne plant near SAIL's existing facility in Bokaro. According to the SAIL official, both sides are together expected to invest Rs.10,000-12,000 crore in the venture. A Posco official put the figure at Rs.16,000 crore, but declined to comment on the issue any further. Both SAIL and ministry officials declined to comment on the exact stake that either company would hold in the entity formed as a result of the JV.On 11 November, Mint first reported that the two companies were sparring over the shareholding structure, with Posco insisting on a majority stake. This stalemate had been preventing the deal from going through.

The proposed plant will use "Finex" technology, which has been indigenously developed by Posco. Since Posco has proprietary control over the technology, it has been reluctant to offer SAIL the majority stake. The use of "Finex" technology allows molten iron to be produced with non-coking coal, directly using iron ore fines and thus bypassing processes such as sintering and coke-making, which are traditionally employed. The technology helps cut costs by 10-15% and also shrinks the production cycle. "Using Finex technology, the two companies can produce steel at $400-450 per tonne.

Typically, the traditional blast furnace method would have cost them $500," said Chintan Mehta, an analyst with Mumbai-based Sunidhi Securities and Finance Ltd. SAIL has been looking at enhancing its production capacity of hot metal from the current 13.82 million tonnes to 23.46 million tonnes by 2013. To achieve this, the company has been looking at several investments, including reviving a closed fertilizer unit at Sindri in Jharkhand and international ventures in South Africa and Indonesia. The proposed project at Sindri has been delayed because of disagreements between the department of fertilizers and the steel ministry on the payment of an upfront fee for the land of the closed unit and a profit-sharing clause, Mint had first reported in August. The SAIL official quoted earlier said: "As yet there is nothing concrete on the company's proposed plans to set up plants in South Africa and Indonesia."

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