India’s largest steel producing company, SAIL, with its consortium group members, has bagged 3 out of 4 iron ore blocks in Hajigak, Afghanistan, 130 km away from the capital, Kabul. The SAIL-led consortium has signed the contract with the Afghan government to access 1.28 billion tonnes of iron ore deposits of 62% Fe (Ferrous), which is of a higher grade. 

As per media reports, the Chairman of SAIL, C S Verma, has stated that the company will invest close to US$ 11 billion in infrastructure development over the next 8 years. The consortium has asked the Indian govt. for soft loans and grants in aid by way of financial assistance, as the majority of the consortium was not capable of meeting the investment requirement for a project of this scale and nature. In this regard, the Chairman also said, “Getting funds from banks and financial institutions would not be easy in this case, as Afghanistan is in India’s negative list".

The consortium had planned to set up a 7 MT plant near the reserves, with an investment cost of US$ 7 billion, Along with this, they will set up a 1000 MW power plant and lay a 200 km railway line from the mine to the plant. Verma mentioned that these investments will depend on the availability of the other raw materials, at least coking coal and limestone.

The consortium has come up with an immediate plan to carry out a geological study of the mine with its own investment of US$ 75 million over a period of 3 years.

SAIL holds a 20% stake in the consortium, while state-owned firms, NMDC and RINL, own 18% each. Private players like JSW Steel, and Jindal Steel and Power hold 16%, while JSW Ispat and Monet Ispat hold 8% and 4% respectively. The investment in the blocks will be made as per their stakeholding.

However, the execution of the projects remains a major concern, and may get delayed due to the lack of basic infrastructure as well as the political issues in the country. 

We, at DSIJ, have worked on the modalities of the project to understand whether setting up steel plant will be economically viable or not. The following points need to be considered in this regard:  

• Steel manufacturing is a relatively low margin business, therefore it is very important for the steel players to have competitive costs. One of the best ways to ensure this is to remain fully integrated. This can only be achieved with proper  infrastructure and resources available nearby. Therefore, to set up a steel plant in Afghanistan, the consortium has to make sure that it remains fully integrated, or else, the feasibility of the project will be impacted.
• Coking coal is one of the major sources of energy to make hot metals in blast furnaces. The key requirement is the availability of coking coal near the plant, as this will make the project more feasible by reducing imported coking coal costs. If this is not possible, the costs of operation will increase.
• The availability of coking coal and limestone mines could be a turning point in this deal. The SAIL Chairman has informed the media that the final decision on setting up a plant would depend on the Afghan government allocating the coking coal and limestone mines.