Dr JJ Irani, who recently stepped down from TATA Sons board after turning 75, was a diligent diarist. During an interview last week in a corner room on the fourth floor of Bombay House, Dr Irani pointed towards a neatly laid out double row of red diaries on a book shelf.
Proud of what he calls are the ‘TATA values’, Dr Irani is concerned if they would get ‘diluted’ as more people (lateral hires) come from outside to work for the group that is expanding across sectors and geographically.
Excerpts from an interview with DNA
Q - Can you talk about the various inflection points at TATA Steel?
A - TATA Steel went through its first inflection point when it started modernizing in the mid 1980s. Till then, it was fast becoming an antiquated plant and sensing that the Indian economy is going to be liberalized we took a bold decision in the 1980s to go in for a new plant. Today, I am very proud to say that TATA Steel in Jamshedpur is probably one of the most modern plants in the world.
The old plant is gone… the capacity at one time was limited to three million tonnes. We have slowly built it up to five million tonnes and then faster to seven million tonnes and now they are about to unleash the latest expansion which will take it to 10 million tonnes.
Beyond that it will be a problem because Jamshedpur is constrained on the land front. Our plants are surrounded by the city and it doesn’t have the space as some of the modern steel plants like SAIL and Jindal. To expand you need freedom of space which Jamshedpur doesn’t have. And therefore if TATA Steel has to expand in India we have to go to Orissa.
Q - We recall you saying at the time of the Corus announcement, that you were watching television with your wife at night, and as bids and counter bids came in, you switched off the TV, concluding that TATA Steel would emerge successful. Going back to the TATA Steel board meeting, was their any skepticism at that point that Corus was too big and too high a price to pay?
A - There’s always discussion. Remember it is always easy to look wisely with hindsight. When we took that decision the steel industry was booming and it was growing very fast. Therefore, we were very keen on getting a footprint outside India and that was an opportunity available and we bid aggressively. The comment you are talking about, I knew how far we would go and from the television reports that was coming in it was obvious that the other party would not go so far. They had made a certain final bid. We had given our team much more leeway. So I knew we had won the race.
Q - What about the challenges emerged immediately with the financial crisis rearing its head?
A - Yes … in a few months not only the financial crisis but the steel industry saw overcapacity from which it still hasn’t recovered worldwide. In India, the situation is quite different. We can make steel at 100% capacity and still not make enough, because the country needs much more steel. So we (Indian steel industry) have now started importing. There’s another story why we (the Indian steel industry) haven’t grown so fast the government processes and the delays in allocation of land and getting iron ore leases etc. This country should be making more than 100 million tonnes and using it, but it’s not doing so.
Q - What about innovation at TATA Steel?
A - I will tell you about one major innovation at TATA Steel from 20 years back. In India, we import coal from all over the world because we don’t have the type of coking coal that the steel industry needs. TATA Steel has a lot of coal mines which are not of appropriate quality, so it devised a process called ‘stamp charge’ where low quality coal, which is also cheaper, can be used to make good quality coke, which replaced the more expensive imported coal. It is one of the main reasons why TATA Steel is the lowest-cost producer of steel in the world.
Q - Is this unique to TATA Steel?
A - It is now, but the process can be used by all. Others who have similar coke reserves can also use it. Right now, it is definitely unique. Stamp charge batteries don’t come cheap, by the way. We had to do a lot of research and pilot plant work for more than a decade before we were sure it will work.
If it didn’t work, it would have been the end of TATA Steel. We had to be absolutely sure. Now the benefit is we are using coal which is one-third the price of imported coal. The financial benefits are huge.
TATA Steel has always been struggling with getting clearances, land acquisition and securing captive mines from the time the first steel project (Gopalpur) outside Jamshedpur was envisaged
We actually got the land very easily in Gopalpur about 4,000 acres. The problem in Gopalpur was infrastructure. The government had said they would give us water, they would give us railway connectivity, port connectivity and most of all there would be iron ore connectivity. None of this could be given in time. Ultimately, we had in two years secured all the land. We still have the land, we are holding on to it but we can’t build a steel plant.
Q - You have another project coming up in Orissa…
A - Now, we have gone to the other area, further north of Gopalpur where we are building a steel plant. We know where the iron ore is, we have to get the lease from the government to operate the iron ore mines. The government has backed out from land acquisition and it is not easy for corporates to acquire land for big projects as in India land is divided into small parcels We have to negotiate with hundreds of local peasants and that’s where the delay is.
Q - Is there any other way to compensate people who are forsaking their land for big projects?
A - The compensation is to train them and also give them a job opportunity. We had taken from Gopalpur hundreds of boys and trained them. The main thing is to make the people suitable for the industry or help them find employment elsewhere.
We have done it in other parts of Orissa, where we have a refractory-making unit in Belpara. The youth there were unemployed and people were having difficulty building their plants. So they had unemployed youth and the industry lacked trained people. What was necessary was a training institute. We don’t employ them ourselves but if we train them they can find their own employment.
Q - The Essars, the Jindals, they were very small in the past but suddenly you find them claiming that they are the largest steel makers in India..
A - That sort of race always goes on, because steel plants don’t come up gradually. They come in steps. You never see a sharp increase in steel demand, so the plants come in phases. When the demand is more and capacity less we put in a plant, that doesn’t meet the demand of the time, it always overreaches. So for some time, there would be excess capacity compared with demand and then demand keeps on rising slowly and then there is a point of inflection where again demand dries up and supply is less.
So when somebody puts up a steel plant here, he becomes the largest steel maker and then somebody puts up another plant later the order changes. I don’t think there is any major worry.
Q - Steel cycles are fairly long drawn out than other commodity cycles. Is it getting shorter and do they mirror the business cycles of the other commodities?
A - In India there are no steel (business) cycles. It is only going up and up and up. Because we make so little steel compared with our population. In the rest of the world including Europe and Corus, we still haven’t got back to the demand seen in 2008. The plants there (Europe) are still operating at below 100% capacity. Nobody there is thinking of Brownfield or Greenfield expansion because plants even now are underutilized. The US uses much more steel than it makes. It imports the rest.
Q - Before acquiring Corus you were the lowest cost producer. It is so now?
A - Jamshedpur is still the lowest, but Corus is a high cost producer.
Q - Isn’t that because Corus doesn’t have any captive iron ore mines?
A - The captive iron ore mines in India cannot be used as a feedstock for Corus. We would be happy to take it, but we have reserved it for India. We are hundred percent self-sufficient in India. In Corus it is the exact opposite, 100% of the ore has to be bought. We are looking for resources all over the world which would supply ore to Corus at more competitive rates.
Q - Some Indian steel companies have bought iron ore mines in Bolivia, Chile and Canada. TATA Steel is yet to secure those kind of iron ore assets..
A - We are also trying. We are not thinking of shipping ore from India. Our European plants will have to get iron ore from either Brazil or Canada or Africa which is geographically closer than India.
Q - There are so many steel companies competing with each other to buy iron ore. Would you be teaming with other European makers to buy iron ore?
A - As far as iron ore is concerned, it is a cartel. There is enough iron ore in the world. There are three international companies — one in Brazil and two in Australia which, between them, control 80% of the iron ore supply. Therefore its price, like crude oil price, is controlled through a cartel and the steel companies who are customers don’t have the bargaining power which these ore suppliers have. Just now, the steel industry is very fragmented. The biggest player in the world, ArcelorMittal, hardly makes 10% of the world steel capacity.
Q - Is there a way for steel makers to come together and break this cartel.
A - They will not come together. The negotiations are being done usually led by the Chinese. They make half the steel in the world. And the rest pay what the Chinese have agreed to.
Q - But can it change if ArcelorMittal, the TATAs and the Japanese steel makers come together?
A - It has not happened till now.
Q - Would TATA Steel look at new frontier areas for raw material assets such as Afghanistan?
A - We have not considered it. There are risks associated with the move and the safety of our people is paramount for us.
Q - But many Indian steel makers are eyeing the region…
A - Well, their appetite for risk is greater than ours. The reason why we left Singur was primarily because of our perception that the safety of our people was at risk.
Q - Coming to the retirement age at TATA … Touchwood you are very active even at 75. Do you think 75 years should be a bar?
A - I think everyone should retire some day, including politicians (laughs). There should be a retirement age for them also. After a certain age, people don’t feel so active and energized and of course you have to think of the opportunities for the lower down. If a person at 40 or 45 thinks he won’t not get an opportunity because others will carry on till 85 and life span in India is increasing there is no incentive for them. So people have to retire in my opinion and what the TATAs are doing by bringing down the retirement age from 75 to 70 is absolutely the right thing. If you are in the government you have to go at the age of 60 and then you’ll have a second career if you are good enough.
Q - There is a transition happening at the TATAs. Do you think there should be experienced people around to manage that?
A - If you are thinking of getting me to talk about the TATA succession, don’t even try, because I am not going to comment.
Q - On your future role. There is this talk that you’ll get big time into education?
A - Now I have the luxury of doing what I think is important in India, with its large multitude of people — education. In education, what is important is we need good teachers.
Unfortunately since we have neglected our teachers and paid them very poorly, that profession has not attracted the best people. So if you don’t have good teachers you won’t get good students and the nation suffers. Now there is one way, in my opinion, and that is to get a good teacher available to a larger number of students. That’s where distance education comes in, where one teacher can impact 30,000 or 50,000 students rather than just 30 or 50 in a normal classroom. And that’s now made possible by technology. I think there are some firms coming up with that kind of technology and I would like to see that spreading as fast as possible because that is in my opinion the salvation for the whole country.
We need education as it is the root cause for all development. We need good education and it will only come from good experienced teachers.
Q - You have teamed up with Everonn?
A - They invited me and I thought it is a good opportunity follow up on my passion so to speak.
Q - What are the other passions that you’ll pursue now?
A - I’ll follow my hobbies.
(Sourced from DNA)
