Red terror casts shadow on bids for Essar Steel

Prospective investors in Essar Steel may have to factor in the Naxal violence that has cost the company quite a bit in the past.

Essar Steel, promoted by the Ruias, was among 12 companies recommended by the Reserve Bank of India for proceedings under the Insolvency and Bankruptcy Code. A number of companies, including Tata Steel and ArcelorMittal, have shown interest in Essar Steel.

Apart from the Hazira plant, Essar Steel operates a number of downstream facilities that include a beneficiation plant in Chhattisgarh. In 2005, Essar Steel built a 267-km slurry pipeline, the world’s second longest, to carry iron ore from Dantewada district, infamous for Naxal violence, to the company’s Visakhapatnam pellet plant that feeds the Hazira plant.

But Essar Steel could never comfortably operate the pipeline due to Naxal terror. The pipeline passes through pockets that rebels claim as their “liberated zone”. According to Chhattisgarh police records, Naxals damaged the pipeline over 20 times between 2005 and 2010.

When contacted, an Essar Steel spokesperson admitted that the company had been facing challenges in the area. “It is not easy to operate the pipeline as either the Naxalites will damage it or villagers will as a pretext for extorting money from the company,” said Bhawarlal Bothra, former president of the Bastar Chamber of Commerce and Industry. Patrolling the pipeline was also risky because the handful of security personnel would be vulnerable to the red army in the densely forested area, he added.

It is not just Essar Steel that is at the receiving end of Naxal violence. The country’s largest iron ore producer, National Mineral Develop- ment Corporation (NMDC), also faces threats from Naxals. The company has two fully mechanised mines in Dantewada district that produce a major part of NMDC’s output.

The rebels have been damaging the conveyor belts of the mines from time to time. In 2006, they struck at the company’s magazine and carried away the entire stock of explosives, killing eight CISF jawans.

Industry sources said Essar Steel’s Visakhapatnam slurry pipeline was also not operational for 1,250 days, leading to frequent disruptions in steel production at the Hazira plant. Essar Steel had to incur a loss of about ~5,000 crore during the period.

The non-operating pipeline increases the cost of transportation and also results in loss of volume and quality. The cost of transportation by a slurry pipeline is ~100 per tonne against ~1,500 per tonne otherwise.