The evolution of a Goan iron ore business into a value-added business


By Peter F X D’Lima

It would be interesting to know how Sesa Goa Ltd, which was in 1988 an essentially iron ore mining, export-oriented company has otherwise progressively diversified into value-added downstream steel specific products for indigenous and overseas sale.

  This evolution is now sought to be progressed further into ductile iron pipe production, by Vedanta Ltd., that bought over Sesa Goa, always safeguarding the principles of employment for locals and adherence to high standards of pollution control that are essential for the state, which is a popular national and international tourist destination, and which is very conscious and conscientious in trying to achieve international standards of pollution control.

   In the early 1980s when Sesa Goa became a public limited company with a 40 per cent holding by the principals Finsider International of Italy / Switzerland, it appointed Prakash Tandon as chairman of the board, who, after initial study, opined that it was too risky for the company with its Indian shareholders to continue operations as a single product company.

 Tandon said that, it was critical for Sesa Goa to diversify into other areas preferably related to the products of the principal shareholders, who, being an engineering public sector company could possibly find India as a large market and could leverage the advantages of India to grow their core businesses.

  I joined the company in 1984, from Hindustan Lever Ltd. with essentially this objective. By then the company had already embarked on some projects of diversification. However, we soon learnt that according to Italian law, the Italian public sector companies were constrained to remain within specified fields of operation, and hence Sesa Goa, being a subsidiary of Ilva, was constrained to grow only in steel related products.

  Essentially, this was intended to avoid the public sector companies of Italy to compete among themselves, which competition could be infructuous to the country’s public sector.

 While restricting our options as specified, we discovered that while the foundry industry in India had made commendable progress, the raw material supplied to them was the basic grade of iron that was used for steel making and therefore not particularly suitable as foundry grade pig iron needed higher silicon content and the addition of ferro alloys for different types of castings.

  A confirmation of this was obtained when the country imported some shipments of foundry grade pig iron from Brazil for which foundries were prepared to pay higher prices and found it produced better castings, more easily.

  More importantly, an investment into pig iron by Sesa would result in investment in value addition to our iron ore business and thus contribute in partly resolving the frequent complaint that the Goan miners were exporting the country’s valuable iron ore reserves permitting the importing customers to add value to the ores and deny this  country of that value.

  However we were aware that this was not a fact, and that we would have preferred to sell our ore locally, if possible, or if it would be accepted economically in local blast furnaces.

  At that time blast furnaces were reserved for the public sector only, and they produced hot metal for steel making, with the excess hot metal was being sent to the foundries. With the impending plans for delicensing of many core sectors of industry, the government decided to permit blast furnaces in the private sector and the steel ministry focused on promoting the manufacture of foundry grade pig iron in the private sector, which would assist the very significant progress being made by the foundry section of our industry.

  Sesa found that this was indeed an opportunity to be exploited in compliance with its board’s and the country’s objectives, and in line with the concept of value addition locally, and an area in which it could draw on the very strong technical support available with its principal shareholders. A significant number of foundries had been successfully established in Kolhapur and Belgaum that made the delivery of the product to this market economical.

  Under the new dispensation, Sesa Goa was the first company in India to launch the manufacture of pig iron in a technically effective mini blast furnace, in March 1992. The Italian and Brazilian technologists who supported us were keen that we should try and leapfrog into the better levels of productivity and pollution levels. Our emission levels had to be reported to our principals and had to meet their compliance levels, and these were stricter than our local pollution control standards.

  This first pig iron plant in India, based on higher shaft mini blast furnaces, and high productivity standards, was inaugurated by the then steel minister, Santosh Mohan Dev in March 1992. The capital intensive pig iron plant was able to turn to viability in its very first year of operation and we declared a dividend of six per cent in its very first year of operation.

  We must also acknowledge the active support we received from the bureaucracy at the steel ministry in the implementation of our project, as they were anxious to ensure support to the foundry industry that had shown so much promise.

  Buoyed with this success we immediately launched into the construction of the second mini blast furnace which was already provided for in the original design and therefore required a much lower capital outlay. The installation of the third blast furnace was done after Vedanta took over the company and in line with their philosophy to optimise the technical efficiencies of the parameters of operation in line with the best in the business.

  We engaged into extensive discussions with a reputed manufacturer of ductile iron pipes in France and although the technical issues had been resolved there appeared differences on the commercial side which did not allow the project to proceed. I am glad to learn that the project is now making a revival and yet another value added product is proposed to be added at the site of the pig iron complex at Amona /Navelim.

   The pig iron and coke complex at Amona, Navelim, now employs a workforce of about 2000 and this activity should add to the employment at this complex. The complex has contributed very significantly to upgrading the prosperity in the local villages, and I believe that the new activity should further contribute to the local employment and to containing the pollution within the current strict standards.

 The Vedanta establishment has done commendable social work in the area in which they operate in the fields of healthcare sanitation, education, as well as other assistance to dairy and other agriculture based farmers and has made substantial contributions to the Swatch Bharat programmes. They continue to do this on a sustainable basis out of their CSR funds. This effort has been much appreciated by these villages.

   Importantly the complex at Amona contributes around Rs 200 crores to the state coffers and an equal amount to the central government.

  I commend the local management of Vedanta on these initiatives as well as the important ductile iron pipe project and wish them all success in this venture.

The writer is the former president and CEO of Goa Institute of Management. He is also a former director of Sesa Goa and started the company’s pig iron and metallurgical businesses.