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Mr B. Muthuraman, Managing Director, Tata Steel, addressing a press conference in Mumbai on Monday. - Paul Noronha

Mumbai , June 13

TATA Steel's Iranian commitments, disclosed on Sunday, include a fully owned facility for producing steel billets entailing an investment of nearly $700 million over the next five years.

The company will partner the Iranian Mines and Mining Industries Development and Renovation Organisation (IMIDRO) in establishing a 1.5 million tonnes per annum steel slab-making facility, a 1.5-mtpa steel billet-making capacity, a separate 3 mtpa export-oriented steel plant and explore and mine iron ore.

At a press briefing today, Mr B. Muthuraman, Managing Director of Tata Steel, said the company would be a 49-per cent equal joint venture partner with IMIDRO (2 per cent would be held by a pension fund of the Iranian Government) at the slab and billet-making facility and the proposed joint venture for exploration and mining, which includes a pellet plant.

The semi-finished steel joint venture would require an investment of $1.2 billion with equity from both sides coming to $600 million on a debt-equity ratio of 1:1. Tata Steel's share would be $300 million.

This facility — the Hormozgan steel project — was already under way as an IMIDRO project when Tata Steel decided to join in.

The exploration and mining joint venture would cost $300 million with Tata Steel's equity share estimated at $75 million. Its pellet plant would supply raw material for making billets. As the IMIDRO joint venture billet plant may be commissioned by early 2009 (the slab facility goes on line in 2008), initial pellet supplies would be met from an existing pellet plant.

The separately proposed 3 mtpa billet plant near the Hormozgan steel project in the Persian Gulf Special Economic Zone (PGSEZ) would be a 100 per cent Tata Steel facility, with Phase 1 (1.5 mtpa) investment pegged at around $700 million. Equity contribution would be $300 million. Phase 1 should be ready by early 2009.

The main recipient of Tata Steel's Iranian billets would be the 2-mt NatSteel, having operations in South-East Asia and China. Some billets would be shipped to the Indian west coast as well, as it is cheaper than moving billets to Mumbai from Jamshedpur. "There are no plans at present for a finishing facility in Iran," Mr Muthuraman said.

According to him, Iran was an attractive location to make steel because it has iron ore and natural gas, the latter being critical to keep costs low. Iran's iron ore reserves at 2-3 billion tonnes were of the magnetite variety, helpful for the DRI route to steel making at NatSteel. Further, the country was poised to be a good-sized steel user in the region, its current production of 14 mt on a modest population base providing a strong per capital intake figure.

Asked if investing in Iran could prove troublesome given the pressure exerted by the US on the proposed Iran-India gas pipeline project, Mr Muthuraman said, while there may be problems, the Tatas had a track record of contributing meaningfully in the geographies they operated in. "Just like India, Iran is also a developing country," he said. At present, the Iranian foray of the Tatas is restricted to Tata Steel's investments.

IMIDRO, set up in 2002, has eight main companies (National Iranian Steel Co, Iranian Aluminum Co, Ehdas Sanat Co, Iran Minerals Producer & Supply Co, Mobarake Steel Co, Isfahan Steel Co and Khouzestan Steel Co), active in mining, steel, aluminium, copper and cement. They in turn function through 40 operative companies. As per its Web site, IMIDRO is the mother company supervising the operative companies and preparing necessary steps for their privatisation.

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