Tata Steel’s Kalinganagar plant unlikely to open this month

10 April 2015

Tata Steel Ltd is set to miss an April deadline to commission its Kalinganagar plant in Odisha, after missing several earlier targets, as India’s third largest steel maker awaits clearances from the state and the central governments.

“We are awaiting a few clearances from the state and central government to start the commissioning of the plant. One such clearance is the consent to operate,” a spokesperson for Tata Steel said in response to an emailed query.

The first phase of the project was expected to be commissioned by the end of March, according to the company’s website. Once the project is fully operational, it will increase Tata Steel’s current capacity from 10 million tonnes (mt) to 16 mt.

Tata Steel conceived this plant in 2005-2006 but work was delayed and could start only in 2010 owing to land acquisition problems. The delays increased the project’s cost that now stands at Rs.25,000 crore for the first phase. Of this, Tata Steel has spent about Rs.19, 800 crore as of 31 December. The project is to be developed in two phases. The first phase involves steel capacity creation of 3.3 million tonnes, which would be raised to as much as 6 million tonnes in the second.

The facilities at Kalinganagar will be ready by March or April and the firm is awaiting the consent of operation from the Odisha government, which is expected in a couple of days, a Press Trust of India report cited T.V. Narendran, managing director of Tata Steel (India and South East Asia) as saying on 10 January.

In an emailed response, Tata Steel did not say whether all clearances are expected to come in before the end of this month.
“The consent for operations has not been issued to the project,” said Anup Kumar Mallick, regional officer, Kalinganagar, Odisha State Pollution Control Board (OPSCB). “In our last visit to the plant, amongst other issues, the process for cooling coke was different from the one they had the earlier environment clearance for,” Mallick said.

Tata Steel is now seeking an amendment to the original clearance granted by the environment ministry. “Tata Steel will have to first submit the amended environment clearance to the Board and only then will the (OPSCB) Board consider it (if a CTO can be issued),” Mallick said when asked if the clearance is likely in April.

Analysts have, however, factored in a commissioning date for the project in the first half of the current financial year. “In our individual interactions, first half of financial year 2015-16 has been indicated as the expected commissioning date and the sales guidance is to achieve half a million tonnes of steel from this plant in the second half of this financial year,” said an analyst with a local brokerage firm on condition of anonymity.

Tata Steel may expedite the implementation of the second phase. “Once we start production for the first phase and start ramping up we will certainly push forward on the second phase, as, fundamentally, it is a plant configured for 6 million tonne,” Narendran had said in March last year.

For now, analysts do not see the delay to be a major concern. “In case the company misses its sales guidance of 500,000 tonne sales from this plant in the second half of the current financial year, it could be a concern,” said an analyst with a domestic brokerage firm on the condition of anonymity.

The company’s total debt as on September 2014 was Rs.56,891.16 crore. For the December quarter, the company’s consolidated net profit fell 69% to Rs.157.11 crore because of a fall in steel prices, increased input costs and competition from cheap imports.
Rating agency Crisil Ltd estimates that the current financial year will see nearly 9 mt in fresh capacity to the existing capacity of about 95 mt. Demand in the same period is expected to grow 5-6%, noted the rating agency.