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Mines min rules out captive iron ore blocks for UMSPs

* Ministry advocates mega projects for better utilisation of ore.

Written by Priyadarshi Siddhanta | New Delhi |
June 28, 2011 1:29:22 am

The mines ministry has ruled out granting captive iron ore mines for the proposed Ultra Mega Steel Plants (UMSPs) to be set up across the country. The ministry has instead suggested that assured supply of ore can happen through a separate linkage policy. It has made out a strong case for setting up Ultra Mega Mining Projects (UMMPs) to service the needs of steel plants.

The steel ministry had proposed at least four UMSPs of 10 million tonne (MT) each to be set up in Jharkhand,Maharashtra,Chhattisgarh and Orissa. Since such projects would call for huge investments,the ministry’s proposal is to set up a Steel Finance Corporation (SFC) as a special purpose vehicle with an initial corpus of Rs 1,500 crore. The SFC would be conferred the status of a non-banking finance corporation. Each state would have a special purpose vehicle for a UMSP and would part-finance the setting up of such a plant.

A project of 10 MT capacity will call for a direct investment of about Rs 50,000 crore. Even if a debt-equity ratio of 1.5:1 is considered,equity of Rs 20,000 crore will have to be mobilised for a single project,according to steel ministry’s proposal.

In a meeting with senior steel ministry officials on June 13,a team led by mines secretary S Vijay Kumar made it clear that captive mining had inherent limitations. Since it did not incentivise complete utilisation of the entire mine production,the government should focus on UMMPs,similar to National Mineral Development Corporation (NMDC). “Ore linkage rather than captive mining should be the paradigm for ensuring raw material security,” they told steel ministry officials.

The contours of the UMMPs are not clear as the mines ministry is in the early stage of deliberations. Once the policy is made clear,then global miners like Rio Tinto,BHP Billiton and Vale may find it lucrative to invest in these UMMPs.

The mines ministry also pushed for a separate iron ore linkage policy as it felt it was necessary to ensure adequate ore supply to the UMSPs and this could be fulfilled only by large mines. “This policy should also facilitate hedging in order to bring stability to ore prices,” the mines ministry officials contended. They argued against giving captive mines for UMSPs as it “would not directly” address the issue of generation of excess quantity of iron ore fines,which presently had negligible utilisation capacity.

To ensure this,capacity addition in benefication and agglomeration was the need of the hour. “The mines ministry would consider a separate policy on incentivising beneficiation,while the steel ministry may work out incentives for agglomeration,” they said.

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