Severstal nears $5bn India steel plant deal

Severstal, Russia’s biggest steelmaker, is set to sign a deal with India’s largest iron ore producer to build a $5bn steel plant to meet growing demand from the country’s manufacturers.

NMDC, an Indian state-owned group, and Severstal, which is listed on the London Stock Exchange, will build the 5m tonne plant in the southern state of Karnataka, according to people close to the matter.

The Russian group is the latest in a series of steel groups and miners that have eyed India to make a multibillion investment to develop a plant.

However, steel projects worth more than a total of $80bn have been stalled because of delays in approvals and land acquisition.

Posco, the South Korean steel group, has been struggling to make progress on a planned $12bn integrated steel mill and dedicated port in the eastern state of Orissa for more than five years.

In October, a government-appointed panel advised that the project’s environmental approvals be withdrawn.

Although the advice is not binding, Jairam Ramesh, the Indian environment minister, who has been actively enforcing environmental rules long treated as mere formalities, is likely to implement it.

Mr Ramesh has blocked plans by London-listed Vedanta Resources to source bauxite from a mountain deemed sacred to members of an indigenous tribe.

His tough stance on environmental standards has been criticised by many steel executives and policymakers, who say India needs the projects to boost industrial development.

Kamal Nath, the road, transport and highways minister, and Sharad Pawar, the agriculture minister, have publicly attacked the environment ministry for standing in the way of development.

Rakesh Arora, a basic material analyst at Macquarie in Mumbai, said Severstal would face similar difficulties in setting up its steel plant.

“A lot of companies have announced plans to develop and construct plants but very few have actually gone ahead with anything concrete,” he said.

In Karnataka, where Severstal’s plant is due to be based, the government has faced an uphill struggle to acquire land for other big steel and power projects.