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Indian Steel Ministry plans for UMPP steel plant mimics look bleak

A big manufacturing plan of the steel ministry, the proposal for ultra mega steel plants (UMSPs) have been dropped. Steel minister Beni Prasad Verma has discarded the projects developed along the lines of ultra mega power projects (UMPPs), since neither the finance ministry nor state governments support the plan.

The projects were conceived in 2008. Four steel plants of 10 million tonne capacity each were proposed for the states of Orissa, Chhattisgarh, Maharashtra and Jharkhand, each requiring significant captive power production.

In its proposal, the steel ministry had argued that setting up these plants will bridge the widening demand-supply gap of the metal, since imports were rising. It had also proposed a Steel Finance Corporation (SFC) as a special purpose vehicle on the lines of Power Finance Corporation to finance the projects on a fast-track basis in the next few years.

According to the proposal, the SFC would have an initial corpus of Rs 1,500 crore and it would be conferred the status of a non-banking finance corporation. But in its recent comments, the department of economic affairs (DEA) of the finance ministry saw no merit in setting up these plants with fiscal concessions.

It cited various doubts raised by certain quarters in respect of provisioning of land, giving long term mineral concessions through the competitive bidding route and granting exemptions in Goods and Services Tax. The DEA contended that large equity capital for such projects cannot be mobilised and the idea of raising infrastructure bonds by the steel sector is not possible unlike the power sector.

While states like West Bengal, Punjab, Uttar Pradesh, Kerala, Goa, Tamil Nadu and Gujarat have rejected the ministry’s proposal, even mineral-rich states like Jharkhand, Orissa and Chhattisgarh did not respond to it.

Besides, the ministries of coal, mines and rural development have firmly opposed setting up of UMSPs in the country, saying that land and raw materials were scarce resources and cannot be dedicated exclusively for such units, the steel ministry observed in a recent note. Considering that each UMSP would require land to the tune of 4,000-6,000 acres along with huge water requirements, none of the states were willing to oblige.

The proposal was a non-starter as steel is a de-regulated sector and investments in steel projects are based on market economics. The steel ministry, which mooted the proposal does not have any regulatory or statutory powers. But in case of UMPPs the states are the beneficiaries in generation of power, unlike that of UMSPs.



* The steel ministry had proposed setting up of UMSPs on the lines of UMPPs

* The proposal has been rejected by states owing to the huge resource requirement

* States are also not beneficiaries of UMSPs unlike UMPPs where they get their share of power

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