By Nageshwar Patnaik in Bhubaneswar, April 29, 2015 :

The promoters of steel units have welcomed the cabinet decision on Tuesday to hike supply of 20% more iron ore them describing it as pro-industry under Long Term Linkage Scheme of the state-owned Odisha Mining Corporation Ltd [OMC].

However, this policy decision would not help in the revival of steel units already closed down or on the verge of the closure.

“The problem lies in fixation of Base Rate for the Auctions. The system of auction is to get a fair rate depending on demand and supply trend in the market, which is not practically achieved in the currently practiced system because the base price fixed by the OMC is not realistic and hence is not fulfilling the objective of fair price determination”, President of All Odisha Steel Federation [AOSF] and Kalinga Nagar Industries Association [KNIA] P L Kandoi said.

Recent shortage of supply, resulting from regulatory and other issues, has made iron ore either too expensive or just plain unavailable to these units. With no captive mines of their own, these units are dependent on OMC’s iron ore. Kandoi said many of them are either shut or operating at as low as 20% capacity.

Odisha accounts for more than half the country’s total iron ore production, and remains critical to the country’s iron and steel requirement.

The non-MoU steel makers have been protesting against what they called “negative attitude of government towards the steel sector”.

“OMC has been fixing the base price of iron ore at very high level. “As a result, they are unable to sell their available stock in e-auctions. So the “Fairness” is not seen in the process. In spite of being not able to sell the offered quantity, OMC is sticking to higher base price. Now because they have to sell out their stock offered in auction, they are tactfully allowing non-MOU units also to buy from OMC at weighted average e-auctions rates”, Kandoi lamented.

AOSF has been urging the OMC to adopt a “cost-plus” methodology, similar to what Coal India uses, in the long-term interest of the manufacturing units within the state. “If the captive industries are getting iron ore by paying for the raising cost and royalty and the base rate of the raw material is 3 to 5 times more for non-captive units, there is no level playing field for captive and non-captive units.

Kandoi made it very clear that OMC should not try to earn money by keeping higher base rates / compelling the industries to buy at those rates and penalizing the units by forfeiting earnest money deposits [EMDs].

OMC, however, is not accepting the cost-plus pricing as demanded by AOST saying that it is not in keeping with the market. “If you look at iron ore prices of NMDC or private players such as Serajuddin or Rungta, OMC’s prices are much lower,” a top OMC official said.