Mines ministry rules out captive iron ore blocks for UMSPs

Wednesday, 06 Jul 2011

Indian Express reported that the Indian mines ministry has ruled out granting captive iron ore mines for the proposed Ultra Mega Steel Plants to be set up across the country.

The mines ministry has instead suggested that assured supply of ore can happen through a separate linkage policy.

In a meeting with senior steel ministry officials on June 13, a team led by mines secretary Mr S Vijay Kumar made it clear that captive mining had inherent limitations. Since it did not incentivise complete utilization of the entire mine production, the government should focus on UMMPs, similar to National Mineral Development Corporation.

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.

They told steel ministry officials that “Ore linkage rather than captive mining should be the paradigm for ensuring raw material security. This policy should also facilitate hedging in order to bring stability to ore prices.”

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 utilization capacity.

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

The steel ministry had proposed at least four UMSPs of 10 million tonne 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 as a special purpose vehicle with an initial corpus of INR 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.

According to steel ministry’s proposal, a project of 10 million tonne capacity will call for a direct investment of about INR 50,000 crore. Even if a debt equity ratio of 1.5:1 is considered, equity of INR 20,000 crore will have to be mobilized for a single project,

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 may find it lucrative to invest in these UMMPs. (sourced from IndianExpress)