India: Government Re-bar procurement notification opens small window for Induction based steel producers

A recent Indian government notification allows small and mid-sized (IF route) players to supply rebars for government projects, with the rider that the billets for TMT production should be procured from "Original" or large producers (BF route). Does this usher in real change in government procurement norms or complicates matters for secondary manufacturers?

The Ministry of Road Transport & Highways (MoRTH) has issued a notification dated 28th Oct'20 regarding procurement of reinforcement bars to be used for plain, reinforced or pre-stressed concrete works on national highways.The grade (IS: 1786) and other related parameters of the reinforcement bars are specified in Clause 1009.3.1 of the ministry's specifications for road and bridge works.

This Clause prescribes that the steel bars shall be procured from "original producers" - integrated manufacturers producing steel through the BF/BOF route. In case, these producers are "unable to supply the steel within the required time period" or in case they are not producing the TMT bars of required size and diameter, supply from other (read secondary) producers are allowed, provided these producers churn out rebars from "billets procured from original producers", the notification states.

Amendment & After

In view of the various representations from secondary manufacturers/associations across the country and the Ministry of Steel's notification issued on 9th Aug'16 which removed the distinction between "original" and secondary producers, the government has "decided that steel reinforcements manufactured by the Secondary (Other) producers are also permitted for national highway works provided the reinforcement bars are manufactured from the billets produced by primary producers", the notification further states.

"All steel shall be procured from producers who manufacture billets directly from iron ore and roll the billets to produce steel conforming to IS: 1786. No re-rolled steel shall be incorporated in the works. The steel shall also be procured from other producers provided it is manufactured from the billets made directly from iron ore and not from shredded scrap and sponge iron as basic feedstock. In such cases, the other producers will have to submit the proof of purchase such as GST, invoice, etc. from the billet producers to establish that the billets are made directly from iron ore and have been procured from them," the notification clarifies.

Grade, feedstock, virgin ore

SteelMint spoke to a few leading rebar players in the country as regards the implications of the notification. A major Raipur-based manufacturer said: "The notification is demoralising for secondary producers. Such producers manufacture over 50% of India's annual steel output. Yet the government doesn't purchase materials from them. In the government's planned 300 mn t of annual capacity target in the coming decade, the secondary producers will at least have a share of over 130 mn t/year."

Another Chhattisgarh-based rebar producer stated: "The Ministry of Road Transport & Highways has specified a grade. Fair enough. Why should it specify the feedstock to be used or the steel-making route? Products failing to meet standards could be rejected but today there are numerous refinement possibilities for IF steel, especially as far as sulphur and phosphorus levels are concerned. Government experts tour plants and other facilities of producers who participate in highway or other infrastructure construction tenders. Laboratory testing of products too are carried out."

"The secondary sector is not in agreement with the amendment prescribed in the notification. There has been no fundamental change in policy and a huge chunk of producers today are still unable to participate in government procurement processes. This, despite the MoS removing the primary/secondary distinction in 2016. Secondary producers have to take up the matter at all levels in the concerned ministry," said a Maharashtra-based TMT manufacturer.

However, there are dissenting voices too. A major Central India-based TMT, sponge iron and steel wire producer, told SteelMint: "All buyers, not just the government, have the right to adhere by specific standards while making purchases. True, refinement possibilities for IF steel have multiplied but only 0.01% of producers are willing to invest extra on technical upgrade. The government not buying steel from them is an old grouse that the secondary sector still nurses. But quality issues are of paramount importance in critical infrastructure."

"Producers in the major hubs of Jalna, Raipur and Mandi are aware that IF steel is still unacceptably high in sulphur and phosphorus content. The integrated route, based on virgin iron ore, still has a distinct edge in this respect. A total technical overhaul is required if the secondary sector wants to participate in large-scale government procurement processes for big infrastructure projects," he adds.

What it means for secondary producers

"The Ministry of Steel had been explicit in its 2016 notification about removal of distinction between primary and secondary sectors. So all tenders issued by user ministries should mention the specific Bureau of Indian Standards (BIS) for the product concerned. So, the source/route of the manufacture of the steel is irrelevant as far as standards specified are complied with," Aruna Sharma, former Steel Secretary, GoI, tells SteelMint.

The Ministry of Road Transport & Highways notification is a further clarification in this regard, she avers, adding that if any secondary steel producer is bidding at a government procurement process, the only consideration ought to be the grade specified by the MoS and not the route of liquid steel production. There is absolutely no difference as regards the specific route of steel-making, she maintains.

"Procuring billets from integrated players, as the notification states, is alright. But it should be made clear to secondary rebar manufacturers that feedstock or steel-making process, as per previous MoS guidelines, are not to be taken into account, provided the grade-wise specifications for the product are satisfied," she explains.