End of a $12 bn dream? After a decade of delays, Posco suspends Odisha project

South Korean steelmaker Posco has suspended the $12-billion project it had agreed to set up in Odisha a decade ago. There are also indications that the company may altogether scrap the project, following the delays in getting ore mining lease and required land.

The 2005 project to set up a steel plant was billed as India's biggest foreign direct investment at that time but it has encountered a series of delays. The company waited about a decade to acquire land for the proposed 12-million-tonnes-a-year steel plant, owing to opposition from local tribal groups. The new mining bill that rendered sourcing of iron ore costlier for the project seems to the immediate reason for the suspension.

 End of a  bn dream? After a decade of delays, Posco suspends Odisha project

Reuters

As per the mining law enacted in March, the company will now also have to buy a mining licence in an auction. Initially, the Odisha government had promised to help the company secure the licence for free.

The new law could raise costs for the company at a time when a global steel glut is depressing prices. "We will have to see how our costs will be, whether it will be viable," Posco's India spokesman, I G Lee, was quoted as saying in a Reuters report. "We will take a final call only after the auction details are out."

Asked whether the company could skip the auction and withdraw from the Odisha project, Lee said: "Yes."

However, a PTI report said Posco has put the project on hold in Odisha due to delays in various regulatory approvals.

“We are tentatively suspending the Odisha (India) project due to lack of any progress,” Posco Chairman and CEO Kwon Oh Joon was quoted as saying in the report.

“Business conditions at home and abroad have changed due to drop in global steel demand, growing deficit of subsidiaries, which have led us to come to a conclusion that we must step up our reform efforts,” he said at an investor event in Seoul on Thursday.

According to a Bloomberg report the company chief also said until "Indian Prime Minister Narendra Modi “offers better deals, we won’t resume and for now we will head to the west and do more downstream work,” he said, referring to a plant the company operates in the state of Maharashtra".

In the PTI report, an unnamed company company spokesperson, however, has denied that it was pulling out of the Odisha project.

“That is not the fact. Due to no progress in the project area, much of office space was lying vacant in Odisha. It was decided to renovate the office space to a smaller area,” the spokesperson has been quoted as saying.

Through the past two years, Posco and ArcelorMittal, the world's largest steelmaker, have scrapped a number of other projects in India, citing difficulties in acquiring land and mines. Another withdrawal by Posco could dent Prime Minister Narendra Modi's 'Make in India' manufacturing push.

Odisha mines minister Prafulla Kumar Mallik, meanwhile, told Reuters that his government remained keen to help Posco but had not heard from the company. "We had requested the central government for a concession for Posco but the Centre wanted to go for an auction," he said. "Now, it is for Posco to decide if they want to participate in the auction."

Narendra Singh Tomar, Union steel and mines minister, has repeatedly ruled out making an exception for Posco.

Since the mining law was announced in March, Posco has cut a number of jobs in Odisha, given up real estate and not rebuilt temporary site offices that were burned down by people protesting against land acquisition by the company.

"We downsized in April because there was no work," Lee said.

Instead, the company is importing steel from South Korea for its expanding network of processing centres in India. It would raise its processing capacity by about a fifth to 680,000 tonnes through a new plant in Gujarat next year, Lee said.

With inputs from agencies

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Updated Date: Jul 18, 2015 08:22:20 IST