Lakshmi Mittal hangs up on Odisha

Lakshmi Niwas Mittal has fought many battles.

When Mittal Steel, the world’s largest steel maker, launched a hostile bid for Arcelor, the second largest, its boss, Guy Dolle, had said, the Luxembourg-based steel maker produced French perfume compared to Mittal’s eau de cologne. Barbs notwithstanding, the bid went through and Dolle lost his job.

Shortly after the $33-billion takeover, Mittal came back to his roots.

On June 7, 2006, he landed at Bhubaneswar to meet Odisha Chief Minister Naveen Patnaik.

The agenda was setting up a 12-million-tonne steel plant that could see an investment of Rs 40,000 crore (Rs 400 billion).

Patnaik assured Mittal of all help so that the project comes up on time.

The assurance was necessary, as Mittal was disappointed with the Jharkhand government.

Mittal Steel had signed a memorandum of understanding with Jharkhand in 2005, but the project had not made any progress.

When Mittal met Patnaik, he publicly expressed his displeasure with the Jharkhand government, saying that his company was not happy with the delay in Jharkhand and was weighing options in Odisha. The plant was to come up in Keonjhar.

Seven years later, however, Mittal seems to have finally put his Plan B  to rest.

According to a recent press release put out by his company, “ArcelorMittal has not been able to acquire the requisite land for the steel plant, nor has it been able to ensure captive iron ore security, which is a necessary requirement for the project.

Therefore, taking into account the current economic climate, ArcelorMittal has concluded it will no longer be pursuing its plans for a steel plant in Keonjhar at this stage.”

Work in progress

The company had achieved several milestones required for the project such as completion of the feasibility report, the environmental impact assessment study and other relevant technical reports, as well as holding eight gram sabha meetings (for land acquisition) and investing in a number of corporate social responsibility projects.

The process of land acquisition had not started, though.

ArcelorMittal, however, has made it clear that it plans to pursue its two other Indian projects in Jharkhand and Karnataka.

Despite the inordinate delays, there are probably few steel companies that have called off projects, especially integrated steel plants, in spite of almost all of them running behind schedule. What then could have possibly driven ArcelorMittal to take the extreme step?

“There was no plan to set up three plants in India. The company, as many other steel producers, wanted to keep its options open. Even among Jharkhand and Karnataka, the company will weigh which one to take forward first,” a person close to the development says.

Indeed, the parameters are in favour of both Jharkhand and Karnataka. In Karnataka, which happened to be Mittal’s Plan C, around 2,000 acres of land has been allotted, out of 4,865 acres promised.

Mittal had signed an MoU with the government in 2010 for a six-million-tonne plant for an investment of Rs 30,000 crore (Rs 300 billion).

In Jharkhand, the company has bagged iron ore mines and has been allocated  a coal block that it will be sharing with GVK Power.

“In Odisha, ArcelorMittal was not able to acquire the requisite land for the steel plant, nor was it able to ensure captive iron ore security, which is a necessary requirement for the project.

In Jharkhand, we’ve made progress on mining and some progress on land acquisition, as well,” a company spokesperson corroborates.

Steel projects demand large tracts of land.

In Odisha, for instance, the total land required for the project was 7,700 acres.

For the first phase in Jharkhand and Karnataka, 2,200 acres and 2,800 acres, respectively, are required.

In a country  where acquiring land is becoming increasingly difficult, thanks to opposition from political parties, doing mega projects often means an indefinite wait.

Land woes

“India is a difficult country, but companies have to weigh how a project needs to be set up.

There was a time when decisions could be made at New Delhi and they would be executed on the ground. It doesn’t work like that anymore,” Malay Mukherjee, a former member of ArcelorMittal’s group management board, says.

Mukherjee, incidentally, had signed the Odisha MoU from the company’s side.

Mukherjee is probably right; after all, Odisha has its share of success stories.

The first module of Tata Steel’s six million tonne plant will go on stream in September 2014. Of course, the project is way behind schedule, given that Tata Steel had signed the MoU in 2004.

Posco also seems to have finally solved the land puzzle in Odisha, albeit with some realignment.

But unlike other steel companies, which have always been on the right side of the government, Mittal has never minced words.

He even went to the extent of saying that the Indian government was condemning millions to stay poor by not expediting industrialisation.

Clearly, Mittal was getting restive.

There is a context to the urgency.

The steel market in  the European Union and the United States have been on a decline for a while now, and the emerging markets are holding out the only hope.

According to an EY (earlier known as Ernst & Young) report, apparent steel use in EU is expected to have declined 5.6 per cent in 2012.

Even Germany, the most resilient of European economies, experienced a fall of 4.7 per cent in 2012.

In contrast, steel demand in India grew 2.5 per cent in 2012 and is expected to grow 5.9 per cent in 2013.

Not surprisingly, there is a beeline for setting up steel capacities.

The EY report suggests that if the 301 MoUs signed with various states are implemented, it would theoretically boost planned capacity to about 489 million tonnes from 90 million tonnes now.

Obviously, Mittal wanted to be a part of the growth story.

When the greenfield projects were not going anywhere, in 2009, ArcelorMittal, bought into Mumbai-based galvanised steel maker, Uttal Galva Steels, with a 33.80 per cent stake.

Mittal was always known to be close to the original promoters, the Miglani family, who now have a  30 per cent stake in the company.

“A downstream project made sense.

It’s not that ArcelorMittal bought into Uttam Galva because greenfield projects were not working out -- it was meant to be in conjunction. There are still many projects on the blackboard (upstream and downstream), but we need clarity on policy matters,” Uttam Galva Steels Deputy Managing Director Ankit Miglani says.

There is also the occasional buzz that ArcelorMittal will gain control of the company, though the Miglani family has maintained that it is not in exit mode.

Steel, however, is not Mittal’s only interest in India.

The Guru Gobind Singh Refinery in Bathinda was commissioned last year by an equal joint venture between HPCL and Mittal Energy Investment. There is a not-so active joint venture with ONGC as well.

Plus, Mittal has been an investor in Indiabulls Finance Services since 2000.

Around mid-2000, Indiabulls received venture funding from Mittal. Financial services apart, Mittal is an investor in other Indiabulls group companies, as well.

In Indiabulls Housing Finance, LNM India Internet Ventures holds 1.55 per cent and in Indiabulls Power Ltd, 5.08 per cent, according to filings with BSE.

The Indiabulls group’s rise has been fast; the group's net worth is Rs 19,335 crore, (Rs 193.35 billion) while the FY12-13 profit after tax stood at Rs 1,454 crore (Rs 14.54 billion), according to the company’s website. Certainly, there’s a lot more up Mittal’s alley than just greenfield steel plants.