CASE STUDY

PLANT LOCATION PROBLEMS

Locat i on of a pl ant has di rect rel evance t o raw m at erial s, m arket, hum an
res ources, ci vi c amenit i es transportation etc. However, in some countries the problem
becomes complicated due to (i) Inter-State competitions and tussles, (ii) Regional development
and (iii) Political pressures and biased decision.
Around 1970 Governm ent of Indi a moot ed t he idea of ex pandi ng st eel
producti on under publi c sect or unit s t o be est ablished at sui t abl e l ocati ons . A
comm itt ee of em inent pe rsonali ti es was form ed t o go t hrough cl aim s of (i )
Vi j aynagar S t eel plant near Bel lar y i n Karnat aka, (ii ) S al em S t eel in TN and
(i ii ) Vishakapatam steel plant in A.P. Since it was under PSU the political pressure was going
on and if it was under private sector, there would not have been any kind of political pressure.

The most important raw materials for steel plant are iron core power and coal. Again in iron ore
the iron percentage should be preferably more than 60% and ash content in coal should be less
than 30%. Thesefactors enable production of iron and steel at competitive price. From experts’
reports the following brief was available:
(a)Vizag – The Iron ore is rich with 65% Iron and coal can be
a r r a n g e d f r o m M P a n d B i h a r a n d Vizag is well connected by broad gauge railway
line to all important cities and the place has sea port and airport. Hence this place has more
natural advantage than other cities.
(b)Salem – Iron ore was having 60 to 65%. Iron content and hence be economically exploited.
Thecoal is in lignite form which is low quality coal. Hence this needs to be converted as coke for
use.The pl ace has broad gauge li ne and Madras sea port and ai rport are nearby.
This pl ace was considered second preference
.( c ) V i j a y n a g a r – Bellary belt has Iron ore of 60% iron but
c o a l h a s t o c o m e f r o m A P ( S i n g a r e n i Colliery). The place had meter gauge
railway line and hence not well connected to all India network. The seaport and airports were far
away and hence this place was not found suitable
.As per the expert committee report steel plant work started Vizag and Salem and these plants
came up as per the plan and are doing well. However, to everyone’s surprise the them PM, Smt.
Indira Gandhi, didfoundat i on st one l ayi ng i n 1971 at Toranagal l u i n Bel l ary
dis t ri ct for Vij a ynagar st eel pl ant al so. Thisul ti mat el y proved t o be an
el ecti on gimm i ck t o pl ease t he vot es, t hough the PS U uni t did not com e
upt h e r e a t a l l . T h i s i s a c l e a r e x a m p l e h o w p o l i t i c
i a n s t r y t o f o o l g u l l i a b l e v o t e r s b y w a y o f inaugurations
/foundation stone laying
.Steel plants are quite huge with township having about 50,000 to 1,00,000 people. Hence
requirements of housing, electricity, water, hospitals, education, institutions, entertainment
facilities are very essential.The investment is huge and this helps to develop the surrounding area
quite well and there is abundantscope for ancillary units, engineering services and employment
inside and outside the steel plant. BothVi z ag and S al em got these advant ages and
producti on st andard as per t he pl an and the se i ndust ri es continue to run profitably.
The expert commi tt ee had m ade comm ent on Vij a ynagar proposal t hat , t he uni t
can be vi abl e i f it uses latest foreign technology. In this method oxygen is injected to force
oxidation of ores instead of natural air. Though PSU was not started a private enterprise JInal
Group took interest and applied for license tothe Central Government. By the year 1990 they
obtained license and Vijaynagar Steel plant with foreignt echnol ogy and deci ded t o m ake
onl y s heet products, whi ch fet ch hi gher pri ces. They al so kept bare minimum
workforce and executives to make it economical right from inception. By this time broad
gaugel i nes were formed and nearest seaport was Goa and hence som e probl em s
were t aken care. This unit became operative in about 3 years and is also running
profitably.
QUESTION
QUESTIONS
q
1.W hat are essenti al factors for locati ng a St eel pl ant and why?

2.Explain how political pressures and pulls effect decision making and delays in starting
industries

.3.Expl ain how it was possibl e to m ake Vi j aynagar pl ant vi si bl e .

SOLUTIONS: