Tata Steel to Begin Construction of Much-Stalled 6 Million-Ton Orissa Steel Plant by End of 2009

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Researched by Industrial Info Resources (Sugar Land, Texas)--Construction of the beleaguered 6 million-ton-per-year Kalinganagar integrated greenfield steel plant project, to be developed by Tata Steel Limited (BSE:500470) (Jamshedpur, Jharkhand) in Jajpur district of Orissa, is expected to start by December this year.

In 2004, Tata Steel signed a memorandum of understanding with the state government of Orissa for the project. However, the project faced stiff opposition from local residents and farmers. Activists belonging to the Visthapan Virodh Jana Manch (VVJM) stalled construction activities, protesting the displacement of villagers.

Tata Steel has faced several hurdles relating to the Kalinganagar plant. In 2006, 14 villagers lost their lives when police resorted to using firearms to quell the growing anti-displacement protests at the plant site. This led to the formation of VVJM, which intensified action and protests against the Tata Steel project. Sources indicate that state and district authorities have intervened and have helped in expediting project construction. The firm already has moved 740 of the 1,195 families from the site of the proposed project to other locations. The rest will be displaced shortly. Tata Steel received sanction of 3,040 acres of the required 3,500 acres of land, but had not taken possession due to ongoing protests.

Over the years, project costs have spiraled due to the delay in land acquisition. In 2004, when the memorandum was signed, Tata Steel had indicated that the total investment on the steel plant would be about $3.2 billion. Now, the cost is expected to reach $4.36 billion. The company has placed orders for plant and machinery worth $1.25 billion. Work on offsite fabrication of steel for the proposed hot-strip mills also has commenced, on land leased from Industrial Development Corporation (IDCO) (Bhubaneswar, Orissa). This is expected to reduce the construction time of the project.

The 6 million-ton-per-year integrated steel plant will be built in two phases of 3 million tons per year each. The first phase is expected to be commissioned by March 2013. Nippon Steel Corporation (TYO:5401) (Tokyo, Japan) has been appointed the technical consultant for the project. Tata Steel is also awaiting allocation of iron ore mines from the state government. The company has fulfilled the requirement set by the state government of placing at least 25% of the plant and machinery orders to receive iron-ore mine linkage.

In India, many companies setting up greenfield industrial projects are facing project delays due to land acquisition issues. Many projects, especially in Orissa and West Bengal, are facing unprecedented delays. Recently, 14 companies, which received approvals to set up manufacturing plants in Orissa, indicated that they were not allotted the required land. The total requirement was about 45,607 acres, of which only 14,131.9 acres have been sanctioned. Earlier, Tata Motors Limited (BSE:500570) (Mumbai), had to exit Singur in West Bengal after protests from farmers over compensation for displacement. Subsequently, Tata Motors set up the manufacturing facility for its Nano range of cars at Sanand in Gujarat. The protests and the shift from West Bengal to Gujarat delayed the launch of the much-awaited Tata Nano.

Tata Steel is also developing a 12 million-ton-per-year greenfield steel plant in Jharkhand. The project is awaiting clearances, following which construction of the first phase of 6 million tons per year would begin. The company is in the process of acquiring land for the construction of a 5 million-ton-per-year steel plant at Jagdalpur in the Bastar district of Chhattisgarh. Tata Steel is also developing the 25 million-ton-per-year Damra port on Damra River near Paradip in Orissa, in a 50:50 joint venture with Larsen & Toubro Limited (BSE:500510) (Mumbai).

Tata Steel's international ventures include the 4.5 million-ton-per-year steel plant in Vietnam, a 151,000-ton-per-year facility at Richards Bay in South Africa, and a 58 million-ton-per-year iron ore mine at Bowen Basin in Australia.

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