India’s steelmakers, more accustomed to securing raw materials such as iron ore and coal, are keeping another key resource in their sights: water.
Two of India’s biggest steelmakers — JSW Steel Ltd. and Tata Steel Ltd. — and metal producer Vedanta have flagged risks due to water shortages in the past month as the world’s second-most populous country faces an unprecedented water crisis, with taps running dry in one of its biggest cities this year.
Competition for the resource is set to grow in India, where nearly a third of the country is water-stressed, increasing costs and risks for companies. A delayed monsoon, which accounts for 70% of the nation’s annual rainfall, has exacerbated the situation this year.
“The urgency surrounding water supply risks is not lost in our discussions with companies, but the talking is still happening behind closed doors,” according to Damandeep Singh, director at CDP, which runs a global disclosure system for companies and others to report environmental risks. “The problem is that when companies in India get water, they get it cheap. There’s no incentive to manage a resource when it is available so cheap.”
Water is shaping up to be a serious economic risk in Asia’s third-largest economy. Desertification, land degradation and drought cost India about 2.54% of gross domestic product in 2014-15, according to a study last year by India’s environment ministry. In a global survey of miners, just under half the respondents reported financial impact worth $11.8 billion over five years thanks to water-related problems such as droughts, increased water stress and flooding, according to a 2018 report from CDP.
India’s second-biggest steel mill JSW Steel has built a new water reservoir with 1.3 thousand million cubic feet storage capacity at its plant in the water-scarce southern state of Karnataka to ensure adequate supply for uninterrupted operations, the Sajjan Jindal-owned company said in its annual report on July 4.
Top producer Tata Steel is also investing in sewage treatment plants to process water for reuse and creating new rain water harvesting structures to improve the groundwater table. Water is used as a coolant in the steel making process and over 3 cubic meters of freshwater is required per ton of crude steel produced, it said in the annual report last month.
Billionaire Anil Agarwal’s Vedanta performed a water risk assessment at 25 of its most significant business locations and found that its operations in Rajasthan, Punjab and Tamil Nadu had a greater risk of shortages than elsewhere because of competitive pressures for water usage in those regions, the Mumbai-based company said in its annual report last month.
`Ostrich in the Sand’
About 600 million Indians are facing high-to-extreme water stress and the situation is set to worsen as water requirements rise, according to a 2018 report by NITI Aayog, the government’s policy making body. Water demand is expected to be twice the available supply by 2030, implying severe water scarcity for hundreds of millions of people and an about 6% loss in India’s gross domestic product, it said.
Greater demand for resources and extraction of mineral reserves in often water-scarce locations, where stable supply of water is no longer guaranteed, continues to jeopardize existing and future operations, according to CDP.
“Companies including miners have been taking water for granted for the longest period,” CDP’s Singh said. “They are still taking an ostrich-in-the-sand approach.”