Tata Steel's Kalinganagar Plant To See 170% Cost Overrun

India’s largest private steelmaker Tata Steel’s upcoming plant at Kalinganagar in Orissa will see its cost overrun by 170 per cent to above Rs 40,000 crore,  when it commission its first phase of 3 million tonne per annum (MTPA) unit in early next year. The project, which started construction in 2005 with a capital outlay of Rs 15,000 crore, has crossed Rs 40,000 crore and counting, Tata Review quoted TV Narendran, managing director, Tata Steel India and south-east Asia.

 

“Typically, it costs about $1 billion (around Rs 6,000 crore) to produce a million tonne of steel. At Kalinganagar, we are spending Rs 4,000-5,000 crore extra at the project site to build local infrastructure and amenities,” said Narendran.

 

Tata Steel’s all three greenfield projects --- Jharkhand and Chhattisgarh, in addition to Kalinganagar --- have witnessed cost escalations because of the delays in getting clearances and construction, in line with the other mega steel projects of ArcelorMittal and Posco. The original plan was to add 23 MTPA through these three projects with a total investment of around Rs 68,000 crore.

 

“With the delays, the total costs would have escalated to around Rs 2,00,000 crore. Surging steel prices, equipment and construction costs and land value are the key reasons for the escalation of expenditure,” said a Mumbai-based steel analyst. The escalated costs will have its bearing on the already burdened balance sheet of Tata Steel--- which acquired Anglo-Dutch steelmaker Corus for $12 billion in 2007.

 

Kalinganagar project has been delayed primarily because of the opposition from tribals there. On January 2, 2006, at least 14 tribals and a policeman were killed when police opened fire to disperse a group of tribals who had gathered to protest against the construction of a boundary wall of the proposed plant.

 

In September 2005, the Tatas had signed a memorandum of understanding (MoU) with the Jharkhand government for its plant at an investment of Rs 42,000 crore. 

 

The Tatas submitted a detailed project report in 2006. The company says on its website that it is awaiting the resettlement and rehabilitation (R&R) Policy from the state government. The project has been stuck at R&R for the last six years.

 

The first phase of the 5-MT Chhattisgarh project was to be commissioned by 2011 and the second phase by 2015. The land has been acquired by the government and transferred to department of industries, which will subsequently lease it out to Tata Steel. The project is yet to receive some of the clearances.

 

In this scenario, Tata Steel may face a prolonged tough time.