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What a steal

K.R. Balasubramanyam | Print Edition: Sep 2, 2012

In just five years, Brahmani Industries' planned steel project, in the backward Rayalaseema region of Andhra Pradesh, has changed from being a symbol of pride for the region to one of deceit. In the summer of 2007, the company stirred much local hope with its proposed two million tonne plant at Jammalamadugu Mandal in then chief minister Y.S. Rajashekara Reddy's native district of Kadapa. The project was promoted by Karnataka BJP leader and then mining baron, Gali Janardhana Reddy.

The company said at the time it would raise the plant's capacity to 10 million tonnes by 2017, making it the largest steel mill in the state. The Rajashekara Reddy government backed it at every step, granting it iron ore mines for its raw material and land at concessional rates - 10,760 acres at Rs 18,000 an acre (or just Rs 19.4 crore) for the steel plant, and another 3,115 acres, at Rs 25,000 an acre (Rs 7.8 crore) to set up a new airport nearby.

Three years later, at the glittering global investors meet (GIM) in Bangalore in July 2010, Janardhana Reddy, by now Karnataka's tourism minister, announced another mega project - a six million tonne steel plant with an investment of Rs 36,000 crore in Bellary district, from which he hailed, and from where his brothers Karunakara and Somasekhara were legislators. It was the biggest investment proposal made at the event, ahead of global steel giant ArcelorMittal's Rs 30,000 crore and South Korean company POSCO'S Rs 32,336 crore, also for steel plants.

But since then Janardhana Reddy has had his great fall, having been arrested by the Central Bureau of Investigation in September last year following a probe into large-scale irregularities allegedly committed by his Obulapuram Mining Company (OMC). More recently, his desperation to get out of jail has sparked off a fresh scandal, as emerging evidence of his attempts to get bail by allegedly bribing judges saw three serving Andhra Pradesh judges, another retired judge and a legislator being arrested. (See Getting His Comeuppance) Not surprisingly, the two steel projects seem to be going nowhere.

On May 31 this year, the Andhra Pradesh government cancelled its memorandum of understanding with Brahmani Industries on the grounds the company had failed to meet project timelines. The state's industries department is struggling to extricate the project from its current mess. A possible saviour could be Steel Authority of India Ltd (SAIL), which has shown interest in taking it over. The state government has not yet responded to the proposal. "SAIL's request is under consideration. But it is too premature to say anything about it," says K. Pradeep Chandra, Principal Secretary, Industries, Andhra Pradesh.

What of the Karnataka project? Far from working on it, Janardhana Reddy, for all his eloquence at the GIM, quietly sold it eight months later to the Mumbai-based Miglani family, promoters of Uttam Galva Steels. The Miglanis have since changed its name from Brahmani Industries Karnataka Ltd to Uttam Galva Ferrous Ltd, but have done little else. "I am going to find out why they are not moving ahead with it," says Murugesh R. Nirani, Karnataka's Industries Minister.

Reddy has claimed he sold it for Rs 285 crore, the amount he had invested in it till then. E-mails to the Miglanis seeking details of the project's status did not get a response. Interestingly, the largest shareholder in Uttam Galva Steels is global steel tycoon L.N. Mittal. Even the lands allotted in Bellary for the respective projects of Uttam Galva and Mittal's company, ArcelorMittal, stand close to each other.

Indeed, Reddy had tried to sell the Kadapa project too, but failed. He had zeroed in on the Sajjan Jindalcontrolled JSW Steel as a potential buyer, but the steel maker backtracked after carrying out a prolonged due diligence. Further, in March this year, the Andhra Pradesh police accused Brahmani of concealing the information that it had pledged the entire 10,760 acres of project land with Axis Bank to take on a loan of Rs 350 crore.

"He (Janardhana Reddy) never had the intention or the ability to set up a steel mill," says former Karnataka Lokayukta N. Santosh Hegde, whose voluminous report on illegal mining in Karnataka created a storm last year. "He was, in fact, in talks to sell his Kadapa project when he was signing the MOU in Karnataka to set up a steel plant. His modus operandi was to buy land at concessional rates and sell it at market rates."

N. Santosh Hegde, Former Karnataka Lokayukta
He (Janardhana Reddy) never had the intention or the ability to set up a steel mill: N. Santosh Hegde
It could have been more than that. For, along with the land around Jammalamadugu village, the Andhra Pradesh government also allotted Obulapuram Mining Company two iron ore mines - spread over 68.5 hectares and 39.5 hectares - in Anantapur district.

"Reddy had no intention of building the steel plant. He was interested only in the mining leases that came along with the project," says H.B. Narase Gowd, former mines minister of Andhra Pradesh. The mining leases have yet to be cancelled, as the government is awaiting a Supreme Court decision. The court had suspended work at a few mines in Anantapur district, including Reddy's, last year, but has yet to make a final decision.

Steel industry experts lament that critical projects fall by the wayside because governments tend to patronise non-serious players like Reddy at the cost of companies with proven track records. In Karnataka, for instance, POSCO is still hunting for sites to build a steel plant, while Brahmani walked away with land and clearances with ease. As it stands now, the chances of either of the plants Reddy had promised starting operations in the near future remain bleak.

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