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Steel ministry proposes to set up SPVs for project clearances

LiveMint logoLiveMint 11-06-2014 Pranav Nambiar

New Delhi: The steel ministry is working on a plan to revive investor interest in the sector by creating special purpose vehicles (SPVs) that will acquire all the government approvals required to start a steel plant, and then hand them over to private entities to go ahead with project implementation.

The steel ministry has proposed that the National Mineral Development Corp. (NMDC) head the SPVs, along with the state mineral development corporation, said two steel ministry officials on condition of anonymity.

The ministry wants to roll out the SPV model in four mineral-rich states: Karnataka, Odisha, Chhattisgarh and Jharkhand.

“NMDC and the state agency will do the land acquisition and get the statutory clearances, like environment and forest, and also ensure the iron ore linkages for the project. The steel SPV project will then be auctioned out to steel companies, while NMDC and the state agency will retain the mines,” said a steel ministry official, who is part of the deliberations, requesting anonymity.

Steel secretary Mohan Kumar confirmed the plan. Emails and phone calls to NMDC chairman Narendra Kothari weren’t answered.

In the past two years, numerous infrastructure projects have been stalled by delays in securing mandatory government and regulatory approvals, such as environment and forest clearances, and in completing land acquisition. The new government is trying to clear the regulatory logjam, which has contributed to two years of sub-5% economic growth.

Some projects have been stuck for far longer. They include South Korean steel maker Posco’s plant in Odisha that has been awaiting approvals for mining the Khandadhar iron ore block since 2005, and ArcelorMittal’s project in Jharkhand that has been stuck for eight years pending approval for mining plans for the Seregarha coal block.

Domestic steel makers like Steel Authority of India Ltd (SAIL), Jindal Steel and Power Ltd (JSPL), Tata Steel Ltd, Bhushan Steel Ltd and Visa Steel Ltd also face similar delays. In the case of Tata Steel, the physical possession of the acquired land for the 5.5 million tonne per annum (mtpa) integrated steel plant at Bastar in Chhattisgarh has been pending for more than two years.

The steel ministry proposal is modelled on the practice adopted by the power ministry for the so-called ultra mega power plants (UMPPs), each of 4,000 megawatt (MW) capacity.

Nine UMPPs were envisaged and four were allotted. For each UMPP, a separate SPV was set up as a subsidiary of Power Finance Corp. (PFC). The SPVs were made responsible for preparatory activity such as the appointment of project consultants, land acquisition, and ensuring linkages to coal blocks.

The steel ministry official cited above said the ministry was still waiting for final responses from the four state governments, although Odisha sounded positive about the proposal.

“The SPV model is not a magic wand to solve all problems around clearances. This is just one of the routes we have sought to encourage investments,” the official said.

An Odisha government official confirmed that the state administration was studying the proposal. A Chhattisgarh government official said it had not received the proposal yet. Officials in Jharkhand and Karnataka who deal with the sector couldn’t be reached for comment.

The proposed model could help attract investment at a premium, given that the regulatory bottlenecks associated with mining projects will be dealt with by the SPVs, said Kalpana Jain, senior director, energy and resources, at audit and consulting firm Deloitte Touche Tohmatsu India Pvt. Ltd.

“It (the SPV model) has been done in some other countries. It will attract only genuine investors,” she said.

The creation of an agency to deal with the clearances is welcome, but the creation of SPVs will not necessarily improve coordination among various government departments and among state and Central government agencies in accelerating the grant of clearances, said Ravi Uppal, chief executive and managing director of JSPL.

“Also, there should be clear timelines for getting these clearances,” said Uppal, who suggested a single window for all clearances.

Steel secretary Kumar said India expects to triple steel production capacity to 300mt by 2025, which requires investment of $200 billion over the next decade or so.

He added that at least 100mt out of the 300mt will have to come from greenfield projects—plants that are built from scratch—as opposed to brownfield projects that involve expansion of existing facilities.

“Greenfield expansion will call for expeditious clearances of environment, forest, acquisition of land, rehabilitation,” he said.

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