Tata Steel plans $120 mn project in South Africa
Business Standard — April 20, 2006

Tata Steel is planning to set up a green field ferro chrome project with an investment $120 million at Richards Bay in South Africa. The construction work on this project is likely to begin from next month and end by last quarter of 2007. Environmental clearance for this 135 million tonne capacity project has been received from South African government recently. Tata Steel is teaming up with Tata Group's holding company in South Africa, Tata Africa, in 90:10 ratio, for the project.

"Over 50 per cent of the funding for the project will be met through equity and shareholders loan and remaining will be raised from overseas financial institutions. The plant will also double its capacity by 2009," said Tata Steel Chief (Overseas Project) Somadeb Banerjee. Banerjee said the project would have turnover over of more than $110 million in the first year of operations. It is also looking at internal rate of return of more than 20 per cent, he added. Towards supplementing this project further, Tata Steel is also actively exploring the possibilities of acquiring chromide ore mines in South Africa with capacity of 10 to 20 tonne.

"Though the project will depend upon India for import of higher grade raw materials, the higher realization will mitigate the transportation cost. This will also leverage lower freight cost, and develop access to markets in Europe and the US apart from servicing existing South East Asian markets," Banerjee said. He pointed out that the South African government had extended a package of strategic investment project status which will enable the project to exempt from income tax exemption up to 100 per cent of investment. This proposed project is located in an industrial development zone, which is equal to SEZ in India.

According to analysts, the ferro chrome project in South Africa makes sense as power cost in the country is 2.34 US cents per KWh for producing chrome compared with 6.44 US Cents per Kwh. Meanwhile, the company is also planning to set up a steel plant with a capacity of 2 million tonne which will be later scaled up to 4 million tonne. This project is likely to be completed by end of 2009 and the company in finalising the arrangements for gas supply and pellets for production.

"The cost of the project is not yet finalized. Though initially Tata Group will be have complete ownership, the Group may think about bringing a joint venture in a later stage," Banerjee said. (The correspondents trip to South Africa was sponsored by the Tata Group).