Why Posco, ArcelorMittal may not return until 2014 elections

Here is a little irony that puts our economy and aspirations in trouble.

A day after the Manmohan Singh-led cabinet decided to open the doors wider for foreign investments increasing and relaxing limits in a number of sectors, two global steel giants Posco and ArcelorMittal have decided to not go ahead with one project each in India.

Posco decided to pull out of a steel mill development in Karnatakabecause of delays in receiving iron ore mining rights and opposition from residents which had held back land acquisition.This essentially means that Karnataka will now lose out on a $6 billion (Rs 35,592 crore) investment, one of the largest proposed foreign direct investments (FDI) in Karnataka.

The land was to be acquired by the Karnataka Industrial Area Development Board (KIADB). But it failed to do the needful in spite of a two-and-a-half-years window as Posco had zeroed in on the steel plant’s location in January 2011.

ArcelorMittal’s problems in India were also similar. The companyscrapped its $12 billion (Rs 50,000 crore) steel plant in Odisha over inordinate delays, problems in acquiring land and securing iron ore linkages.

“Over the last seven years we have invested considerable resources into this project. However, the delays relating to land acquisition and allocation of captive iron ore blocks means this project is no longer viable,” said Vijay Bhatnagar, Executive Vice President and member of the Management Committee, CEO of India and China for ArcelorMittal.

Both the incidents highlight the big lacunae in our policy making process. Even if companies express their keenness initially, they seem to soon lose hope.

While there is no denying the fact that land acquisition is a big problem here, slow-paced process of getting environmental clearance and uncertainty over working and non-working mines seem to be but the bigger hurdles. Add to these, the high cost of finance and bleak outlookfor greenfield capacity.

The rupee’s unprecedented sharp depreciation has worsened the situation for the global majors. This is because a declining currency makes imports costlier. For far metals makers are concerned, the bulk of their coking coaldemand is met through imports, thus increasing the margin pressure.

A Business Standard article note s, there was hope in the industry when in 2002 around 200 memoranda of understanding were signedby steel companies, including ArcelorMittal,Posco, Tata Steel, JSW Steel, Bhushan Steel and many others, with the mineral-rich states of Jharkhand, Orissa and Chhattisgarh.After eight years, a number of companies have either cancelled or postponed their plans. Now, with nosignificant orders coming through and half of them gone, the hope seems to have evaporated.

Will Byun, an analyst at Woori Investment & Securities, told Reuters the Odisha project was the only one of the three that was “gaining steam”.“But overseas projects are not easy to do, and it is unlikely that the Odisha steel mill will break ground soon,” he said.

“Expectations for Posco’s India projects have already been lowered,” said Choi Moon-sun, an analyst at Korea Investment & Securities.

A year back,ArcelorMittal, had officially announced that India is no more a priority for the company to make major investments. And its decision to pull out from one of the FDI proposals in Odisha is a proof of the gloom in India.

Meanwhile, after years of raging controversy over Vedanta’s bauxite mining at Niyamgiri hills, it is down to the most crucial part today. The Niyamgiri tribals will decide if they want to part with Niyamgiri hills and allow Vedanta to continue with its Rs 40,000 crore project in India.