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JSPL pins hopes on infrastructure development
Jindal Steel and Power Ltd aims to capitalise on the government's thrust on infrastructure development through expansion projects in steel and power areas, says Manojit Saha
Jindal Steel and Power Ltd, an O.P. Jindal group company, which has the world's largest coal-based sponge iron manufacturing capability, at Raigarh, Chhattisgarh, has chalked out ambitious plans in both steel and power sector.
In steel, JSPL plans to double its sponge iron capacity and, in power, the company has announced the 500-mw (phase-I) of a 1,000-mw coal-based power project in Chhattisgarh, to be implemented by Jindal Power Ltd, a subsidiary of JSPL. Says Sushil Maroo, Vice President, Corporate Finance, JSPL: "In sponge iron, we are doubling the capacity in the next one year. We are also adding steel melting capacity that will have a capacity of 1 million tonnes of steel in one year's time. We are also setting up a power plant of 500 mw, the phase-I of a 1,000-mw plant. The power plant, which will be set up at a cost of Rs 2,140 crore, will be operational in 36 months. The funding will be 70-30 debt equity ratio." The sponge iron plant would be located in Orissa.
The company is buoyant about the industry outlook. It hopes to capitalise on the impending increase in the domestic and global demand for steel. The Government of India's focus on developing infrastructure could be a boon for JSPL. The company is currently engaged in long products, which, it feels, has a bright future after the higher outlay for infrastructure development.
"Steel demand in the country will certainly increase because the per capita consumption of steel is extremely low as compared to that in the developed countries and the world average. As the government lays a lot of emphasis on infrastructure development, the demand for steel will increase, especially for roads, bridges and housing," Maroo explains. "Now people use more steel in their houses on an average. With interest rates benign, this sector will ensure the demand growth. The government is also taking a lot of steps to make steel available, such as slashing excise duties from 16 per cent to 8 per cent, which the sector was demanding for a long time. All these initiatives will boost steel demand."
However, the company believes that the recent spurt of steel demand in China is temporary in nature, and the company largely expects its growth from domestic consumers. Maroo also feels that the protectionist attitude of the developed world is a temporary phenomenon to take care of the temporary miss match of the country's requirement. This will go away in the long run.
Steel prices, which have been heading north in recent times, are expected to settle down in the near future. On the increase in demand and the rise in prices of inputs, Maroo says, "This price rise initially happened with demand push and because of high demand there was pressure on input prices, so the prices of iron ore, metallurgical coke and coal went up. This further pushed up the prices of steel. I feel that steel price will remain stable for some time and in future as prices of inputs come down, the price of steel will come down in tandem."
Thrust on power
The company plans to enter the power sector in a big way. With the government keen to continue reforms in the power sector and the passage of the Electricity Act 2003 likely to make it smoother for IPPs to operate, JSPL hopes to reap rich dividends. Claiming that his company will produce low-cost power in the most efficient way, Maroo states, "Power is going to be a major business for the company since we have strengths both in power and steel. Right now we have about 205 mw and with another 50 mw by the year-end, we will have 255 mw of power. As I mentioned earlier, we are also setting up phase-I of the 1,000-mw power plant, which will be 500 mw. So we are moving into the power sector in a big way. To maintain a GDP growth of 8-9 per cent, power is the key." Maroo was of the opinion that India could ill-afford high-cost power. Low cost, local coal-based power is expected to grow in a big way.
Adds Maroo, "The government's initiatives in the power sector will provide a conducive environment for the independent power producers, as they do not have to depend on the state electricity boards for their power requirements."
JSPL pins hopes on infrastructure development
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