Global Financial Crisis Hinders ArcelorMittal's $20 Billion Investment Plans in India

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Researched by Industrial Info Resources (Sugar Land, Texas)--The worldwide financial turmoil and the consequent liquidity crunch and slackening demand for steel have caused steel giant ArcelorMittal (NYSE:MT) (Luxembourg) to slow the pace of ambitious steel projects in India's eastern states of Jharkhand and Orissa. To make matters worse, the firm is caught in a tangle of delayed land acquisition and iron-ore mine allotments for the projects in addition to facing stiff resistance from the local population, which will be displaced.

ArcellorMittal had planned to set up two greenfield integrated steel plants, each with a capacity of 12 million tons per year, in Jharkhand and Orissa at a total investment of $20 billion. The steel plant in Jharkhand was to start the first phase of production by 2012. The Orissa plant was to be developed in two phases, each with capacities of 6 million tons per year. The first phase was scheduled to be commissioned in 2010. The firm is presently noncommittal about scheduled progress and commissioning of both projects because of uncertainties prevailing in the global market.

While the firm has secured iron ore mines in Karampada with reserves of 65 million tons for the Jharkhand project, it has not yet acquired land to set up the steel factory. ArcelorMittal has identified Torpa and Kamdara in the Khunti and Gumla districts of Jharkhand as prospective sites for the plant in the state. In Orissa, the firm is in an advanced stage of land acquisition but has yet to secure iron ore supplies for the project. The company is eyeing a prospecting license for the mines in Badamgadapahad and Thakurani in Keonjhar, Balipahada in Sundergarh, and Mankadanachha. The firm is also hoping to pick up a mining lease for the mines at Malangatoli in Keonjhar and Sundergarh.

The total amount of iron ore for both projects is estimated to be 1.2 billion tons, 600 million tons for each steel plant, during a period of 30 years. The firm has also requisitioned about 7,750 acres of land from the state government of Orissa and 11,000 acres in Keonjhar from the state government of Jharkhand. In October 2007, ArcelorMittal was allotted two captive coal blocks, one in each state--Rampia in Orissa and Seregarha in Jharkhand--to generate 700 megawatts of power for the steel plants.

ArcelorMittal had entered into memoranda of understanding for the projects with each state's government more than three years ago. The memorandum with the Orissa government was signed on December 12, 2006. Generally, it takes a firm about 18 months from the date of signing a memorandum of understanding to completion of the detailed project report and four years thereafter to commission the unit and commence production. Delays in ArcelorMittal's projects have seeped in at the project-report stage itself. M N Dastur & Company Private Limited (Kolkata, West Bengal), consultant for the two projects, completed the first draft of the detailed project report for the Orissa plant only recently and is likely to complete the report for the Jharkhand project by March of this year.

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