Ultra mega steel plants: do we need them?

The slow pace of capacity addition ails the Indian steel industry and PK Misra, the top bureaucrat at the countr's steel ministry, is trying hard to find a solution. For the past few weeks, Misra's team is weighing the pros and cons of what could be a one-shot solution, ultra mega steel projects or UMSPs. On paper, these mega steel plants look promising.

Each of these steel plants will have an annual capacity of 10 million tonnes or more and will need an investment of over Rs 40,000 crore. To help companies raise such huge sums of money, the government will set up a non-banking finance body called Steel Finance Corporation. It will be registered with the Reserve Bank of India and will have powers to raise money.

Both private and public companies from India and abroad can bid for these mega projects. "We are talking to various stakeholders, including steel companies, on the way forward. We will later take a decision," Misra told Forbes India. The steel companies though are not enthused. "Why do you need another policy to set up mega steel plants? It will be better to give the same status to the present steel plants that are being expanded. We are facing various obstacles in acquiring land and getting access to mines," says a senior executive of Jindal Steel and Power.

Ironically, these are the very obstacles that the UMSPs intend to address. A mega steel plant will use less land per tonne of steel capacity and also rationalise the use of resources like water and power. But some companies are now going the other way. ArcelorMittal, for instance, instead of building mega plants, is now looking at smaller units. This reduces the need for large tracts of land and eases pressure on local sources of water.

Sure, China is a different story. Mega plants, those with capacity of more than 5 million tonnes, make 70 per cent of China's steel. The Chinese government is also in the process of shutting down small steel plants. But then, it doesn't face complicated socio-economic factors that stall mega projects in India. "We should instead look to retain the present form of Indian steel industry, which has a few big steelmakers and many smaller ones. The focus should be on making the present projects progress as fast as possible," says a member of Joint Plant Committee, a think-tank under the steel ministry.