Indian steel factory makes way for elephants

NEW DELHI // India's second second-biggest maker of steel will stop work at an iron ore mine in the eastern state of Orissa to make way for an elephant corridor.

The environment ministry will not renew the Steel Authority of India's permit after a two-year extension expires on Saturday, sources close to the matter said.

Orissa, where a government panel is currently reviewing illegal mining and environmental damages, plans to set up a passage way for the elephants near the state-owned company's mine, the sources said.

The stoppage at the Bolani mine will cut the New Delhi-based company's iron ore output by almost 20 per cent and impair 2.8 million tons of steelmaking capacity. At an average price of 35,000 rupees (Dh2,377) per ton of steel, the shutdown may result in an average revenue loss of 98 billion rupees, imperilling the company's expansion.

India had 27,694 elephants as of 2008, according to data on the website of the Ministry of Environment and Forests. In Orissa, almost 5,000 hectares of prime elephant habitat is encroached by mines, erasing corridors used by the animals for thousands of years, according to the website of the Wildlife Protection Society of India.

"Elephants don't need a very large area to move, but they need forest cover for a sense of security," said Dipankar Ghose, the New Delhi-based director of species and landscapes programme at WWF-India. "The associated development around the corridor makes them insecure and makes them react violently to the environment. If an animal species is exterminated from a place, it's an irreversible change."

India's federal government is cracking down on illegal mining and has set up a panel to probe extraction in seven mineral-rich states including Goa, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa and Karnataka.

"A comprehensive audit of mining across the country is necessary to assess the effect on environment, lives and also the extent of illegality," the former mines secretary Vishwapati Trivedi said in September.

Getting environment and forest clearances for projects can take as long as seven to eight years, according to NC Jha, head of mining at Monnet Ispat and Energy and former chairman of Coal India.

The environment ministry has stepped up vigilance in recent years, with violations leading to restrictions and bans by the Supreme Court and local administrations.

Steel Authority will attempt to make up for the closure by raising output at other mines and by using low-grade ore, the sources said. A Steel Authority spokeswoman did not answer two calls to her office.

The company, which has the capacity to extract about 25 million tons of iron ore at its mines, is already struggling to tap a reserve in the central state of Chhattisgarh in the face of attacks by Maoist rebels.

Buying the raw material from the market may raise costs by $70 a ton, said Ravindra Deshpande, an analyst at Elara Securities, further eroding profit that has declined in eight of the past nine quarters.

"Captive iron ore is Steel Authority's biggest advantage and the closure is certainly a big hit to profitability," Mumbai-based Mr Deshpande said.

Steel Authority plans to spend $13 billion (Dh48bn) to boost steelmaking capacity by 60 per cent to 21.4 million tons annually, improve products and develop mines.

The federal government, the main shareholder of Steel Authority, will do everything to resolve the issue as it needs to raise money by selling a stake to narrow its budget deficit, said Niraj Shah, an analyst at Fortune Equity Brokers India.

"There's a lot at stake here," he said. "It's not just about SAIL's profitability, but it can also affect the government's disinvestment plan."

Finance Minister Palaniappan Chidambaram plans to raise at least 300bn rupees from the sale of state-owned shares in companies including Steel Authority to bolster strained finances.

A shutdown of the mine may help smaller makers of the alloy to gain market share.

* Bloomberg