India's SAIL Dusts Off Salem SEZ Plans in Response to Reviving Steel Demand

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Researched by Industrial Info Resources (Sugar Land, Texas)--Steel Authority of India Limited (BSE:500113) (SAIL) (New Delhi) has decided to resume work on its Special Economic Zone (SEZ) at Salem, in the southern Indian state of Tamil Nadu. The move comes in the wake of reviving steel demand, both within and outside the country.

Originally initiated in 2007 in partnership with Infrastructure Leasing & Financial Services Limited (IL&FS) (Mumbai), the venture was shelved in 2009 when IL&FS opted out of the project due to the global economic crisis. SAIL now has called for fresh expressions of interest for the venture, and this time is hopeful of choosing a dependable partner in the next couple of months. Investment details for the project are yet to be finalized. Meanwhile, the company is planning a $13 billion expansion operation aimed at ramping up its production capacity to keep pace with domestic demand, which is predicted to grow 12% in 2010.

The SEZ, due to have been functional in 2010, was to be developed over a land area of about 250 acres, housing mainly downstream manufacturing facilities for railway infrastructure; process equipment for dairy, pharmaceutical and chemical sectors; readymade facades; lift panels; steel pipes and tubes; food processing machinery; and components for the automotive industry. The proposed site is located just adjacent to SAIL's stainless steel manufacturing plant at Salem.

The SEZ is likely to benefit SAIL in many ways. In addition to earnings from land leased for industrial production, the SEZ is viewed as beneficial to utensil manufacture employing the branded Salem Steel, which is well-known for its quality. The zone could also offer warehouse facilities for finished goods apart from serving as an export center for SAIL, with exports from the SEZ likely to quality for tax concessions. SAIL also will provide custom steel variants required by units setting up shop within the SEZ.

As envisaged earlier, SAIL will execute the venture by means of a special purpose vehicle, which will be responsible for construction, operation and maintenance of the SEZ, in a 50:50 partnership with the selected firm.

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