Red Corridor gives Essar the blues

Doing business is not easy if you operate through the heart of darkness in India's now infamous Red Corridor.

Ask Essar Group about it.

It has gone back to the drawing board to secure raw materials from the region.

Bothered by the constant Maoist threat to its Kirandul-Vizag slurry pipeline, group flagship Essar Steel is being forced to have a rethink on the route, putting at risk the Rs 1,000 crore (Rs 10 billion) pumped into it.

Essar Steel runs an eight million tonne per annum pellet plant in Visakhapatnam and a benefication plant in Kirandul.

The 267-km Kirandul-Vizag slurry pipeline -- the longest in the country -- originates in the iron ore-rich area of Balaidila in Chhattisgarh and runs through Maoist territory.

In March 2010 and then as recently as last October, the pipeline was damaged after Maoists blew it up.

These attacks crippled Essar Steel's operations, as the pellet plant in Vizag was shut after ore supply was disrupted.

The company sources ore from NMDC for its benefication plan in Kirandul and pumps it through the pipeline to the pellet plant in Vizag on the east coast.

There, the beneficiated iron ore is converted into pellets, which are then loaded on to ships and sent to its Hazira Steel Complex all the way to the west coast of Gujarat.

These pellets are then fed into the blast furnace to make steel.

The company is now keen to re-route it altogether, making the journey even longer.

"The current route of the slurry pipeline was chosen because even at 267 km, it was the shortest distance between Kirandul and Vizag. If we go along the highway, the pipeline

would be longer," said Dilip Oommen, MD and CEO, Essar Steel.

All this will come at a steep price.

The cost of relaying and re-routing the Kirandul-Vizag pipeline along highways is estimated to be over Rs 1,000 crore (Rs 10 billion).

It will be more than what the company spent the first time.

Oommen said, "The cost will be substantial. It will be close to Rs 1,000 crore but we don't have the exact figure right now.

"This time around, the cost would be more because the route will be a little longer."

According to Oommen, this is a risk-mitigation step the company is planning.

He said, "The final risk-mitigation step would be to lay a second pipeline on the Kirandul-Vizag route.

The process hasn't started yet but it's a thought. Wherever possible, we try and cut down on risks."

Industry sources said Essar may possibly tie up and share infrastructure with peers in the industry also planning similar pipelines to carry ore in the region.

"A lot of people are ready to set up the pipeline for us. We could tie up with someone," Oommen said, without specifying names.

Oommen said the Kirandul-Vizag pipeline mostly went through the forest area, which was why it was prone to insurgent activity.

"We have learnt from this mistake and that is why the new Dabuna-Paradip pipeline runs mostly along highways," he said.

This will be the second pipeline project that will feed the Paradip pellet plant.

Currently, only half of its 12 million tonne per annum capacity has been commissioned.

To be flagged off in June, this will be smaller, at 253 kms.

But, the company, having learnt from experience, is following the highway route right from the inception.