Easier import norms irk steel makers.

KOLKATA: A government notification exempting steel imports from quality control norms has evoked furious opposition from the domestic steel industry. But engineering companies executing large projects welcomed the move as it would cut red tape and speed up construction.

The order, signed by the Director General of Foreign Trade (DGFT) on August 7, exempts steel and steel products imported for mega industrial projects with investment over Rs 1,000 crore from the applicability of a regulation known as the 'Steel and Steel Products (Quality Control) Second Order, 2012'.

The exemption from quality control norms is available to projects in the infrastructure, petroleum and manufacturing sectors involving high-end technologies as well as nuclear reactors, defence, chemical, petrochemicals and fertiliser projects. The exemption will be in place for two years.

Some will Benefit

"We are completely puzzled. If such steel is used in critical application like defence and nuclear reactors, one would think the quality aspect would be given top priority. Smaller countries like Indonesia or Korea too insist on registration of steel producers and on local quality certification," said Jayant Acharya, director marketing at JSW Steel.

A senior SAIL official, who did not want to be named, said it would affect the company adversely. But a Tata Steel spokesperson said the move would have no impact on the company. The move will benefit companies like L&T that can now freely import foreign-made steel specific to their needs without the bureaucratic hassles of obtaining local quality certification. "It will improve project schedules and ensure faster turnaround of projects," an L&T official, who did not wish to be named, said.

A top steel ministry official, on condition of anonymity, said the intent behind the exemption was to help companies carrying out large-scale capital expenditure.

"It is a complex issue and there is no easy answer. The original order on quality control was aimed at small domestic producers. It was later imposed also on steel imports by the commerce ministry. However, a number of critical infrastructure projects that depend on import of special grades of steel from the likes of L&T, Reliance Industries and BHEL were getting affected due to this. The latter have tie-ups with foreign EEPC contractors, who in turn have arrangements with large foreign steelmakers for sourcing up to 15,000-20,000 tonnes of various grades of steels for project construction. This may have prompted the commerce ministry to opt for the exemption," the official said.

The reaction from the steelmakers illustrates the difficulties the government faces as it tries to ease bottlenecks that have stalled many projects.

But steelmakers are upset since none of them was asked to give their inputs on this issue. "It is not conducive to the domestic steel industry. It is also highly surprising to see that the government wants to exempt steel used in high-end technologies and nuclear reactors from quality certification," said H Shivramkrishnan, chief commercial officer, special projects, Essar Steel India.

The domestic producers have 90 milllion tonnes of capacity with utilisation level of 70-80%. "Local sourcing would not only help in utilising idle assets but also boost employment. The main worry is that apart from plates, a lot of plain-vanilla grade of structural steel like rebars and TMT bars will also get into the country. It will strike at the very heart of our steel industry where currently a lot of idle capacity exists," Acharya pointed out.

"While the government is planning to lower export duty on iron ore and boost forex earnings, the latest decision will boost steel imports," he added.

India imports 5-6 million tonnes of special steel every year. With total steel imports rising sharply to 8 mt in FY13, steel producers are already up in arms against cheap imports from Korea and Japan due to FTA agreements. The latest order will thus come as a further blow for steel producers.

"The reason behind the move is not very clear. Projects require some special grades of steel. While it is a fact that new projects have not taken off, it is not for want of materials like steel," Anjani Agarwal, partner (metals & mining) at Ernst & Young, said.

"The government must have been convinced that the move will foster a pick-up in project activity and hence boost GDP growth," he added.

Source : economictimes.indiatimes.com