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Tribunal puts $12 billion POSCO plant in limbo

NEW DELHI (Reuters) - A tribunal on Friday suspended the environmental licence for POSCO's $12 billion steel project in Orissa, India's biggest foreign direct investment, in a fresh blow to business confidence in Asia's third-largest economy.

"The National Green Tribunal has suspended the environment clearance," environmental lawyer Ritwick Dutta with activist group Green Panel told Reuters.

South Korea's POSCO signed the agreement for the mill in 2005 and was scheduled to begin production by the end of 2011. Protests, environmental concerns and government inquiries into alleged illegalities at a related mining concession have delayed it.

POSCO (005490.KS) spokesman Chung Jae-woong in Seoul said he could not immediately comment on the ruling and it was not clear if the company would appeal. POSCO said it had received no official notification of the court's decision.

Foreign firms vying for a place in one of the world's fastest-growing markets have been rattled by a series of decisions and policies governing investment in recent months, including the cancellation of more than 100 telecoms licenses by India's Supreme Court hearing a corruption case.

The setback for the South Korean steelmaker, the world's third largest, came just days after Prime Minister Manmohan Singh told a group of CEOs in Seoul his country was a stable location for their money.

On a state visit to South Korea this week, Singh tried to convince more Korean businesses to invest in India despite the recent dents to investor confidence.

"The government is keen to move forward with the POSCO project," Singh told the business leaders on Monday. "I believe that India is a stable and profitable long-term investment opportunity. I urge Korean industry to have faith in India," he said.

Environmental groups have long complained that POSCO's plant would destroy large areas of forest in the poor state and would hurt the livelihoods of indigenous tribes in the area.

Dutta said there were serious discrepancies in the way the government issued a conditional approval for the project last year.

The company said it would build a 12 million tonne-per-year mill. Dutta said that was three times the size of project approved by the environment ministry.

"Strangely enough the environmental impact assessment studies are done only for a 4 million tonne project," the lawyer told the CNN-IBN television station.

POSCO is seeking to expand overseas as it faces a growing threat from home rival Hyundai Steel, challenging POSCO's dominance in high-end steel used in autos and ships.

(Additional reporting by Hyunjoo Jin in Seoul; Writing by Frank Jack Daniel; Editing by Matt Driskill)