Indian steel companies are pondering whether to put aside their rivalry and bid together for one of the world's most precious iron ore reserves in Afghanistan
For a millennium and a half until 2001, the giant Buddhas of Bamiyan in central Afghanistan were witness to much history. They overlooked the passing of the trade caravans of Europeans, Indians and Chinese along the Silk Route. Over the centuries, the Gandharas, Hunas, Ghengis Khan and even Soviet tanks had left their imprints in the vicinity. Throughout all this turbulence, the statues stood unchangingly as the symbol of Buddha’s greatest teachings — harmony and co-existence. So, when the Taliban dynamited and destroyed the Buddhas a decade ago, it appeared as if these ideals had been lost forever.
Today, the Bamiyan Valley is helping to rediscover a new future for Afghanistan. Not only is there an international effort to rebuild the Buddhas, there is also a plan taking shape to convert the Bamiyan province into a thriving industrial centre. Not far from the ruins lies a hidden treasure: The 1.8 billion tonne Hajigak iron ore mines. With a very high ferrous content of 68 percent, these are among the most coveted reserves in this part of the world and represent the best chance for rebuilding the war-torn nation.
This January, the Hamid Karzai government put the exploration rights to the mine up for an open bid. It attracted some of the biggest mining and steel firms from around the world, including Vale of Brazil and China Metallurgical Group. But the biggest interest came from Indians. Fifteen of the 22 firms that expressed an interest in tapping the mines are Indian. If all goes well at the final opening of bids in August, India hopes to use the Hajigak mines as a gateway to playing a role in Afghanistan’s transformation.
But the Indians face a dilemma. If each of the 15 firms competes on its own, the flock could be swept aside by the global giants. So, the Indian companies have done something they never did before: They have taken a leaf from Buddha’s teaching of peaceful co-existence and are exploring the possibility of bidding as a single consortium. Now, these are hardwired rivals competing for the $51 billion steel market back home. If they decide to bid together, they would be opening a whole new chapter of co-operation.
Understandably, the Indian government is delighted. It has backed the plan with a promise to fund 15 percent of the acquisition corpus. In early April, the Indian Express reported that at a high level meeting chaired by steel secretary P.K. Misra, senior officials from the ministry of external affairs said the government had the provision to dip into the Rs. 5,850 crore corpus set aside for executing developmental projects in Afghanistan. When asked, Misra downplays the development saying that no final decision has been taken. Given that some of the companies trying to get into the joint bid are state-owned, the final go-ahead will, of course, have to come from the finance ministry.
The joint bid is seen as a stepping stone to a larger objective: The creation of India’s own sovereign fund that will help home-grown companies buy expensive resources abroad and also help meet the country’s energy needs. For it is not only steel companies looking to buy mines abroad, but also power generation players hungry for coal mines. “Various concepts including a sovereign fund are there, but all are in debating stage right now. A sovereign fund will come under the MoF and it has to decide on that,” says Misra.
Bonds of Steel Three men are the centre of this initiative to bring together rivals for a greater common purpose. V. Krishnamurthy, former chairman of Steel Authority of India and now the head of the National Manufacturing Commission, C.S. Verma, the current SAIL chairman and Malay Mukherjee, CEO of Essar Steel who had earlier worked at both SAIL and ArcelorMittal. They think the urgency for the steel industry to collaborate hasn’t come a day sooner.
The other area where a consortium could work is opening up new market segments within India. Take the household sector or the farming sector, for instance. It may not be viable for one firm to seed these markets as initial volumes will not justify product development and marketing costs. Interestingly, that was a task that Indian Steel Alliance, or ISA, was supposed to do. Set up in 2001, ISA had five of the biggest Indian steelmakers as members — SAIL, Tata Steel, JSW Steel, Essar Steel and Ispat Industries. “It was set up as an industry representative at government level and also internationally. Unfortunately, differences between its members saw it shutting shop in 2008,” says D.A. Chandekar, editor and CEO of SteelWorld, an industry information and consultancy organisation.
(This story appears in the 06 May, 2011 issue of Forbes India. To visit our Archives, click here.)