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Cover Story

“More Regulation will have a Negative Fallout”
P. K. Mukherjee, MD, sesa Goa talks to Virat Bahri on The Company’s outlook post The Lifting of The Export ban and The Sfio Report
Issue Date - 21/07/2011
B&E: FY 2010-11 was an year where you dealt with relatively low iron ore realizations. In the light of that fact, what is your perspective on the results? Also, what are your expectations with respect to when these realizations will improve in the coming time?
PKM: Iron ore realization were good but volume was relatively low. The ban on export of Karnataka ore and even the procedural bottlenecks for moving ore for domestic consumption outside the state, extended monsoon in Goa along with transport time restrictions are the major reasons that came in the way of volume growth. Dispatch of quantities more than EC permissions done by some mine owners (particularly south Goa) that further restricted iron ore movement and the unprecedented increase in road freight in Goa were other challenges. Otherwise, we are quite confident of market being quite buoyant and expect price realizations to be range bound.

B&E: What major transformations have been done post the company’s acquisition by the Vedanta Group? What were the managerial and business related challenges and how did you overcome them?
PKM: Vedanta group acquired SESA in 2007 and then DEMPO acquisition came in 2009. Volume has doubled during this period. Strong Management Information Systems including motivation/push for operational excellence and more empowerment of executives with career growth opportunities for younger generations are few areas of transformation. We also challenge our own benchmarks continuously. The thrust is on continuous growth with sustainability.

B&E: Investors would be waiting for the time when you will be able to finally move towards steel production and export. What is your perspective on the same?
PKM: If the Indian steel industry can consume all the grades of iron ore as exported, miners would be only happy to sell it to them at market determined price. Exports of iron ore from India were never done by design but only because the miners in India were not left with any choice. As far as coming into steel production is concerned, well, it would come at its own time.

B&E: How critical is the lifting of the export ban from iron ore in Karnataka to your business?
PKM: The amount of iron ore produced in our Karnataka iron ore mine hasn’t got enough demand in domestic market; leave alone the issue of market determined price. Hence, growth of our Karnataka volume (as per environmental permissions) is critically dependent on effective lifting of the ban with the seamless issue of all permits required legally.

B&E: Indian steel companies often complain that we should be looking at value adding our iron ore within the country rather than exporting it. What is your stand on this issue?
PKM: Theoretically, yes. (But) where is the capacity to consume? How much capacity have we added since independence? Value addition, as stated above, is a big subject and we can discuss over it for hours. I can only say that nowhere in the world does steel producers depend only on captive ore. Instead, players buy ore from merchant miners at international prices, be it Australian Blue Scope or even US Steel mills, leave aside the Japanese and Europeans who have largely depended on imported ore for decades and still compete year after year in the international market with competitive technology – they invest in sinter plants and consume all grades of ore instead of high grade lumpy ore as a major portion. There are so many sponge iron plants in this country that only consume high grade lumpy ore of specific size, leading to crushing of limited natural resources and generating more fines; leave aside the question of their environmental footprints.

B&E: What is your outlook for the current fiscal? How do you see the break up of your Indian and global businesses altering?
PKM: Domestic sale as a percentage of total sales is going up. But a significant quantity coming out of Goa mines, which is having low grade reserves and is not touched by domestic steel producers will necessarily have to be exported continuously. The Karnataka scenario and transport bottlenecks in Goa would determine our outlook this fiscal. We’ll continue to maximize the volume within all regulatory parameters. Subject to the above, we look forward to volume growth of about 20% from our Goa and Karnataka mines put together.

B&E: What is your stand on raising of export duties by the government? How is the new manufacturing policy expected to affect your business?
PKM: We believe in free market economy and more regulations have various fall outs, which, in the long run, may not be helpful for the country as a whole.

B&E: What is the status of the SFIO investigation that questions your overinvoicing of imports and what is your stand on the same? How important is transparency to you as an company?
PKM: We’ve received the SFIO report and are in the process of compiling our comments & are confident that the ministry will consider the report objectively after evaluating our comments.
Virat Bahri           

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