For JSW Steel, the Yeddyurappa scam in Karnataka can have a nasty ricochet

JSW Steel, currently India’s biggest steel maker, is set to find itself in a corner for a second time this year when the Karnataka government takes action on the Lok Ayukta’s report in the next three months.

While its core business has seen scorching growth through organic and inorganic initiatives, the company has also had its share of controversies.

In March, tax sleuths raided its offices in Mumbai and Ratnagiri.

And now, according to sources, the Lok Ayukta’s report submitted to the state governor has charged the Sajjan Jindal-controlled firm of paying bribes to the ousted Chief Minister BS Yeddyurappa’s children.

This was the compensation paid for modifying a memorandum of understanding between itself and the state-owned Mysore Minerals Ltd for mining iron ore from the Thimmappana Gudi mine in Bellary.

The Lokayukta’s report accuses the state of other malpractices leading to a loss of ¤16,000 crore.
While senior JSW Steel officials could not be reached despite repeated attempts, a company spokesperson offered no comments.
On Thursday, the JSW share fell by almost 5% to close at ¤819.20 following talk of action against on the basis of the Lokayukta report.
“JSW Steel sources close to 15% of its iron ore requirement from the mines mentioned in the report. This could severely impact its iron ore procurement ability and hence increase input costs,” said an analyst with a leading domestic brokerage who did not wish to be named.
According to JSW Steel’s latest annual report, Thimmappana Gudi supplied 2.2 million tonnes of iron ore through the joint venture company Vijayanagar Minerals, and the target for this year is 3 million tonnes.
However, JSW Steel recently started sourcing iron ore from Chitradurga, reducing dependence on Bellary to some extent.
Another analyst said JSW could see significant long-
term fallout including loss of credibility.
While Sheshagiri Rao, group chief financial officer of the JSW Group, did not return calls on his mobile phone, during a press conference on Tuesday, he had said that Karnataka’s mining industry feeds close to 16 million tonnes of steel making capacity in the country out of a total of 62 million tonnes per annum, and contributes 0.5% to India’s GDP.
“With 16 mtpa capacity, the amount of iron ore required to feed it is close to 34 mtpa, considering 80% capacity utilisation. Now with only 12-14 mines operating in the state, the total iron ore produced last fiscal was around 33 mtpa out of which 7.6 mtpa was exported,” said Rao, adding the domestic industry fell short of the raw material by around the same number.
He said most of the illegal mining that happens in the state usually goes for exports.
So while a ban on several mines has helped in reducing exports and there by illegal mining, a complete shutdown of mining is badly hurting domestic steel producers. Hence he urged for an intermediate relief by increasing mining operations from several mines in the state.
Karnataka has close to 100 mines.