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Smelters return home from Lanka

Business Standard, India

Smelters return home from Lanka

Dilip Kumar Jha / Mumbai

22 September 2006

A majority of Indian secondary copper smelters based in Sri Lanka are winding up their operations in that country because of economic problem as well as threat perception over local environmental issues.

Twenty Indian secondary smelters - big and small - had shifted their base to the neighbouring country, after the Free Trade Agreement (FTA) was signed between the two governments, in order to avail of duty-free copper scrap and residues imports shipped to India.

Sources said though the agreement made 35 per cent value-addition mandatory in the neighbouring country for further exports to India, some traders were diverting their shipments to India without value-addition.

Another development has rendered exports to India routed through Sri Lanka unviable. The Indian government has reduced direct import duty from over 50 per cent in 2000 to only 7.5 per cent now, which makes scrap imports through Sri Lanka even without value-addition unviable, and direct imports - not routed through Lanka - a more reasonable business model.

In addition to the economic angle to the whole issue, for the Indian smelters there is an environmental hurdle too. Industrial bodies in Sri Lanka have raised a hue and cry saying Indian secondary copper smelters processing copper scrap and residues in order to manufacture cathode and bars have been releasing an obnoxious and harmful gas.

In this backdrop, genuine processors from India started facing customs and excise raids, threat from the LTTE rebels etc. Shah said the year 2003-04 was “very tough for us in terms of increased custom raids - both surprising and unnecessary.

As many as 16 of the 20 Indian smelters have either sold their machinery to local (Lankan) players or shifted them to India. They have also leased back the Lankan government’s land to local business houses.

Silvasa-based Polycab Cables, the largest smelter from India, is still running the show in the name of Lanka Cable, but the company is also reportedly looking for a strategic buyer to return home to India.

“We are distressed with the Indian and Lankan governments’ decision,” said Rohit Shah, president, Bombay Metal Exchange, who lured by the government’s policy of duty-free imports in 2001, Shah had also moved to Sri Lanka.

All the companies, operational in Lanka now, were looking for strategic buyers for a possible comeback, he added. These plants are currently running at a very low capacity between 300 tonne and 400 tonne a month, Shah said.

Like Shah, these smelters too had shifted their base to Sri Lanka in 2001 in a bid to avail of tax benefits under the Indo-Sri Lanka FTA signed in 2000.

Even though Sri Lanka does not produce copper scrap and residues, imports from the country increased substantially. The imports stood at one million tonne in 2004-05.

“Sri Lanka does not offer any business advantage now and, hence, it is logical to shift base from there immediately,” Shah said, added “the Board of Investment of Sri Lanka (under the Lankan government) has been changing the norms every now and then, which is very harrassing”.

The Indian government has signed FTAs with a number of countries, and some smelters have already shifted their base to Myanmar and Nepal, “but we should be very careful while dealing with such offers in future”, Shah said.