Rediff India Abroad
 Rediff India Abroad Home  |  All the sections

Search:



The Web

India Abroad




Newsletters
Sign up today!

Article Tools
Email this article
Top emailed links
Print this article
Contact the editors
Discuss this article

Home > Business > Special


Orissa's investment promise: A hype or...


Surajeet Das Gupta & Dilip Satapathy | August 05, 2006

A fortnight ago, when the priests at Jagannath Puri opened the doors of the temple in the vesper light of the morning, they found an unexpected visitor waiting for them.

Anil Ambani had driven all the way from Bhubaneswar for a quiet darshan. But that wasn't the only reason the younger Ambani was in Orissa. Later in the day he would sign a Rs 60,000-crore (Rs 600 billion) deal with the Orissa government, the largest investment by any corporate group in the state.

The investment, to be spread over a couple of years, would include building a 12,000 mw coal-based power plant, a health city that would boast world-class medical facilities, and an IT institute of excellence. 

After a meeting with the chief minister, Naveen Patnaik, the chairman of the R-ADA conglomerate would address the press. "We are bringing in the largest investment in the power sector at one location in the country in Orissa," he would say.

"It will overtake the 4,300 mw plant in South Africa, which is currently the largest single location power plant in the world." 

But Ambani -- who has committed almost half his group's total investments to this state -- is not alone in rediscovering Orissa's industrial potential.

A bevy of the country's top corporate houses -- the Tatas, the Aditya Birla group, the Ruias, aluminium major Anil Agarwal, IT giants Infosys and Satyam, and international majors Arcelor-Mittal and South Korean steel giant Posco -- are making a beeline to Orissa to transform this neglected state in eastern India into an industrial hub.

And cashing in on its rich mineral resources to set up projects as diverse as steel plants, power projects, aluminum refineries, ports, health cities and IT development centres.

Explaining its hunger for investments, the state's industry secretary I Srinivas points out, "Orissa is focusing on sectors where it has a competitive advantage, which is in mineral-based industries. Next, we are focusing on IT/ ITES and education to create a manpower stock for future industries."

Srinivas adds, "Large projects will have a multiplier effect on the economy and on job creation." "There is a lot of hope and expectations," agrees Subhrakant Panda, MD of Indian Metals and Ferro Alloys and also chairman of the Orissa chapter of CII, "because both steel and power are employee-intensive."

If the money pouring into the state is any indication, it's going to result in a lot of jobs all right. In the last month alone, large corporations signed fresh investments worth Rs 1.2 trillion, nearly a fourth of the total investment committed in Orissa amounting to a staggering Rs 4 trillion (70 per cent of which is for projects in the steel and power sectors).

According to a Centre for Monitoring Indian Economy study of investment trends in states, Orissa ranked right on top of the heap (based on projects announced or under implementation), ahead of Karnataka, Gujarat and Maharashtra.

Low profile on the national agenda, chief minister Naveen Patnaik has nevertheless succeeded in roping in top-notch corporates to pledge their monies to his state.

The Tatas plan to spend Rs 30,000 crore (Rs 300 billion), for instance, on a slew of projects ranging from a new steel plant to a new port, a 3,000-acre, multi-product SEZ, a 1,000 mw power plant, on hotels and on the expansion of existing units.

It is by far their largest investment in any state. Says a Tata spokesperson, "Of course, the main attraction is the raw material -- iron ore, coal, bauxite -- and the large coastline helps."

For Posco, Orissa represents its largest investment outside Korea. Says Soung-Sik Cho, managing director of Posco India, "Serious players like Posco are committed to their projects in Orissa" -- but more on that later. Vedanta's Anil Agarwal is gambling Rs 47,000 crore (Rs 470 billion) -- its highest investment in any state -- for projects ranging from alumina refinery to a university for (hold your breath!) one lakh students. Says the chairman, "Our objective is to create a world-class university on the lines of Ivy League institutions like Harvard."

These investments have the capacity to transform Orissa from an economically backward state to a hub for power and steel, a centre for medical tourism (it has already roped in Apollo and Asian Heart Insititute, apart from getting Anil Ambani to set up a health project in the state) with large ports (its Dhamra port will handle those large ships which no other Indian port can).

The employment opportunity is enormous. The steel projects alone -- if all of them take off -- could throw up 3 lakh new jobs in the marketplace, not to mention another 1-2 lakh jobs in areas like power and the service sector.

The IT thrust, the government hopes, will help the state increase its employment potential five-fold, to around 20,000 jobs by 2010. Apart from Infosys, the state government has tied up with Wipro, TCS and MindTree, which will be given land to set up centres.

Experts estimate that the state government could rustle up Rs 17,500 crore (Rs 175 billion) as additional revenue from steel alone through sales tax, excise and mining royalty. And if a Mckinsey report is to be believed, its 7.1 per cent growth rate over the next decade will be the highest among the eastern states.

That's the good news. But will these projects -- and promises -- take off? In the mid-90s too, Orissa had been seen among the top three states as far as fresh investments were concerned (rubbing shoulders with Maharashtra and Gujarat), and the government had signed a dozen-odd steel projects (think Tata's steel plant in Gopalpur, Kalinga Steel floated by Swraj Paul, and large power projects from CEPA and AES), all of which came a cropper.

Some got stuck on environmental issues, others because of local opposition to land acquisition or lack of transparent mining policy, and still others for lack of infrastructure support.

Says Srinivas Rao, country head of AES Power, which abandoned its power distribution company due to huge losses and non-payment of dues by consumers, "The government needs to implement power reforms, honour its contracts, and seek a speedy resolution to disputes."

Will it be luckier the second time round? Says a state industry ministry official, "Previously, the mega projects failed to take off for lack of infrastructural and logistic support. Also, the smaller promoters were never serious and had thrown their hats into the ring to grab mining leases."

Having learnt its lessons, the state government is attempting to resolve key issues such as delays in project clearance, problems of land acquisition and rehabilitation and, of course, access to captive mines.

"A good thing," says CII's Panda, "is the government's keenness in seeing that small and mid-size projects come up alongside the mega projects."

The government is also investing in new infrastructure. It has set up specific task forces with nodal officers for each mega project to ensure speedy clearances. A monitoring committee headed by the chief minister oversees the progress of all large projects.

To ensure that environmental issues do not lead to delays, a new power policy has been formulated so producers of power have to commit a small amount from each unit to an environment protection fund.

More importantly, only companies that commit 25 per cent of their investment upfront in a steel project will be recommended for mining leases, and only when they put in 50 per cent will mines be allotted.

Says Priyabrata Patnaik, managing director of Industrial Promotion and Investment Corporation of Orissa, "This clause has helped weed out non-serious promoters and improved the ratio between proposals and actual implementation."

Conscious of the opposition faced by corporates in the acquisition of land from the locals, the government has put a comprehensive rehabilitation package in place -- among the best in the country.

Says chief secretary Subhash Pani, "We have enhanced the compensation amount for land and housing building assistance, the cash compensation for the self-employed, and guarantee a job to one member of each family."

Under the new policy, cash compensation has been doubled, housing building assistance trebled, and a maintenance allowance of one year sanctioned for those shifting to a new location.

It is also seeking private-state cooperation to build fresh infrastructure. One example is its decision to set up a special purpose vehicle funded by the government and user industries to develop infrastructure in Kalingangar, where most steel plants are coming up. A fund has been set up with money from companies that buy land in the area, to be used for a railway network corridor.  

In specific industries like IT, the state is ready to offer concessions in line with major IT states. Says Vishal Dev, director for IT, "We formulated an IT policy to offer incentives and concessions at par with those in Karnataka and Andhra Pradesh."

But all this may still not be enough; certainly, some investors are complaining that there is a growing gap between promise and delivery. Visa Steel, for instance, has not got its allotted mine even though it has made the mandatory 50 per cent investment in the project.

Says Bishambar Saran, chairman of Visa Steel, "Raw material is an area of concern even though we have met the MoU conditions for the mining lease. We are now buying ore from the market, which is putting pressure on our margins."

Others argue that in its euphoria to announce projects, Orissa has signed up far more MoUs for steel plants than it has iron ore resources to support. The opportunity is obvious to anybody. Globally, prices for iron ore have been rising for three years and are not expected to settle down at least in this decade.

Says a senior executive of a steel company, "The government has signed 43 MoUs, but looking at its reserves this could lead to an iron ore shortage of 1.25-1.5 billion tonnes."

But steel and mines minister Padmanav Behera defends the government. "All the projects will not happen," he says, "We have already served cancellation notices to seven companies. Besides, we can enhance resources through scientific exploitation."

Worse, environmental issues, together with opposition from the populations who face displacement from their land, is already creating havoc. Vedanta's Rs 4,500 crore (Rs 45 billion) alumina refinery project has got stuck with green groups filing a petition against it for destroying the eco-system.

The company has sunk more than half the money in the project. The Tata-L&T Dhamra port project is under fire for possible destruction of the habitat of the endangered Olive Ridley turtles.

Posco executives will not talk, but the company is facing sustained protests over land acquisition in Paradip and government officials coming for survey work have been blockaded.

Insiders involved with the steel plant admit that the project has been delayed for six months, and it has been forced to change the site map 60 times and bring down the number of displaced persons from 2,000 families to a fourth that number.

Infrastructure continues to be the state's biggest bugbear. Agrees S K Sarna, managing director of Nilachal Ispat Nigam Limited, "It is a huge challenge. We estimate the government will require Rs 30,000 crore (Rs 300 billion) for roads, ports and the rail just to support the new projects."

That must leave a lot of the players in the state unhappy for now. Says Saran, "Infrastructure development has not been up to expectation." Laughs the senior executive of a power company that decided to stay away from Orissa, "Announcing a 12,000 mw power plant is very good, but how will you get the power to deficit states in the west and north? Where are the transmission systems?"

He speculates that just as in the mid-90s, big boys are hoping to control the state's output of iron ore and coal rather than implement their projects.

Patnaik and his team seem determined to make a difference to Orissa's industrial landscape. But these efforts need to go beyond media hype and mega announcements to prove that this time, the investment plans will actually take off. Or, as somebody said, "Patnaik will need to think the way the Chinese do to make his grand vision click."

Do you want to discuss stock tips? Do you know a hot one? Join the Stock Market Investments Discussion Group



Powered by

More Specials

Share your comments


 What do you think about the story?




Read what others have to say:


Number of User Comments: 7




Sub: Orissa investment: A hype or...

Its high time that the state & central government gave the state its due. It has always been a state rich in natural resources. Using ...


Posted by BV Raman





Sub: Its really Great

Its graet , Mr.Ambani is doing a great thing.... It will give lots of Job to many unemployed people of Orissa.


Posted by Bishwa





Sub: Orissa Investment

The last part, the anti-denti cons part really holds the key as well. 1)Infra (for all) 2)Land acquisition (not only posco, but mostly all) 3)Socially ...


Posted by Santo





Sub: Orissa Investment: Hype or Reality

Excellent Article Mr. Dasgupta and Mr. Satpathi. Very well laid out like the previous pieces on the same topic. But this time you have gone ...


Posted by Santo





Sub: Investment in Orissa

Its right to say if all the project implements in orissa, then its symbol of poverty will be vanished. Above all the real fact is ...


Posted by kclituz




Disclaimer


Advertisement






Copyright © 2006 Rediff.com India Limited. All Rights Reserved.