ArcelorMittal Nippon Steel India Ltd has agreed to buy the port, power and other logistics and infrastructure assets of Essar Group for about $2.4 billion, the joint venture company said in a statement.
The transaction is expected to be funded only by AM/NS India and is subject to completion of corporate and regulatory approvals, it added.
The acquisition includes a 25 million tonne (mt) capacity captive jetty at the all-weather, deep draft bulk port at Hazira in Gujarat, which is adjacent to AM/NS India’s flagship steel plant, a 16 mt all-weather, deep draft terminal at Visakhapatnam Port in Andhra Pradesh along with an integrated conveyor connected to AM/NS India’s 8 mt iron ore pellet plant in the port city and a 12 mt deep-water jetty at Paradip Port in Odisha along with a dedicated conveyor that handles 100 percent of pellet shipments from AM/NS India’s Paradip pellet plant.
The purchase also comprises a 270 MW multi-fuel power plant at Hazira, which has a long-term power purchase agreement with AM/NS India’s adjacent steelmaking facility, a 515 MW gas-based power plant, along with allied land that can be utilised for AM/NS India’s expansion plans at Hazira and the 100 KM Gandhar – Hazira transmission line, connecting AM/NS India’s steelmaking complex with the central electricity grid.
The assets are either captive, including port assets in Gujarat, Andhra Pradesh, and Odisha, or allied to AM/NS India’s steelmaking and will strengthen the strategic integration of the company’s manufacturing and logistics chain, ArcelorMittal Nippon Steel India said.
“Full ownership of the strategically located port assets in Gujarat, Visakhapatnam and Paradip will ensure seamless connectivity and supply chain security for movement of raw materials and finished goods between AM/NS India’s manufacturing facilities in western, eastern, and southern India, as well as for exports,” the company said.
Acquisition of the power and transmission assets will ensure cost-effective, long-term power supply and energy efficiency at Hazira.
The assets being acquired are cash accruing and will generate operational synergies immediately upon completion of the transaction. AM/NS India will be able to realise further synergies from rising throughput at the port assets because of the company’s planned expansion of steel production capacity, it added.
The captive port at Hazira was at the heart of a two-year long legal dispute between ArcelorMittal Nippon Steel India and Essar Group.
ArcelorMittal Nippon Steel India contended that the 25 mt captive facility should be transferred to it after buying Essar’s steel plant at Hazira for about ₹42,000 crore under India’s bankruptcy law. Essar, on the other hand, argued that the port was not part of the resolution process under which Essar Steel was sold to AMNS.
Located in the Gulf of Khambat on the outskirts of Surat, Essar’s port can accommodate partially loaded Capesize vessels and fully loaded minicape vessels of 105,000 tons and is key to the operations of the steel plant for bringing raw materials and exporting finished goods.
The steel plant and the captive port were run by different entities but being under the Essar Group, the steel mill (when it was run by Essar) enjoyed favourable terms including pricing advantages from the port operator. Essar Bulk Terminal Ltd located at Hazira is run by Essar Ports Ltd, the port operating unit of the Essar Group.
The 10 mt steel plant requires 20 mt a year of raw materials such as coal and iron ore which have to be shipped through the port.
With the steel plant going out of the Group’s fold, it will no longer be a captive, anchor customer for the port thereby classifying the new owner of the plant as a third-party customer with whom the port operator will have to re-work the pricing terms for the services rendered by signing a new long-term contract at market rates.
The proximity to the steel plant and the mechanised handling facilities erected including a conveyor system to take the raw materials such as iron ore and coal directly into the mill and export finished steel and other dry bulk products makes it an ideal choice for ArcelorMittal to continue using the port, giving a better price negotiating power to Essar Ports, a port industry consultant said.
The port has a 550-metre-long long jetty, ship unloaders and storage facilities for finished products, a rail network, dredgers, tugs, and mooring boats.
The steel mill will be handicapped without the captive port and ArcelorMittal Nippon Steel’s choices were limited.
The only alternative is a port run by the Adani Group located some 17 kilometres away. But, in the absence of conveyor systems, carting the raw materials and finished goods to and from the steel plant by trucks would add to the costs and erode the competitiveness of the steel maker.
The Gujarat Maritime Board (GMB) which had awarded the rights to Essar Ports to build the captive facility on a long-term concession had subsequently allowed the port operator to handle third-party cargo also, but this quantity was restricted to half of the total cargo handled by the port. Later, the Gujarat government over-hauled the state’s port policy allowing captive facilities such as the one run by Essar to handle third party cargo without any restrictions. This will help captive ports to become full-fledged commercial ports besides granting them freedom to invest in expansion and modernisation.
