POSCO Turns to Essar Steel Alliance to Unblock 12 Million-Ton Steel Mill

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--POSCO (NYSE:PKX) (Seoul, South Korea), the fifth-largest steelmaker in the world, has been battling India's regulatory maze and difficult land acquisition regulations in Orissa since 2005 to begin construction on the company's planned 12 million-ton-per-year steel mill.

Now the company is reported to be waiting for a response from Essar Steel (Mumbai, India) after making an approach through a third party to float the idea of an alliance to shift the $12 billion project into construction mode.

At the end of March, environmental clearance for the project was suspended by the National Green Tribunal (NGT). Industry sources say that POSCO's move toward Essar Steel comes from a realization that the joint venture route with a local partner, favored by Japanese steelmakers for their Indian plants, is the pragmatic way to go to get things moving. The proposed project is the largest foreign direct investment project ever mooted in India by a wide margin.

POSCO is also building smaller steel mills to make specialized grades of steel and is planning to build plants of this type in Maharashtra and in Gujarat, despite the seven-year standoff on the mega-project.

In 2009, POSCO received forest clearance for the project, but a strong opposing lobby from local residents in Orissa and civil society groups made the environment ministry suspend the clearance and ordered an enquiry led by the environment secretary Meena Gupta. This led to the re-instatement of the forest clearance in 2011, followed by the process of land acquisition, which was scheduled to be complete by the end of this year. But then at the end of March, the NGT suspended the clearance. This was followed immediately by India's comptroller and auditor general accusing the Orissa state government of acquiring the land for the POSCO project and other projects illegally.

Essar Steel, a part of the Essar Group, is owned by billionaire brothers Shasi and Ravi Ruia and owns steel mills with a combined annual capacity of 10 million tons per year in India and another 5 million tons of capacity in other countries.

POSCO is not the only international company to have problems launching steel projects in India. Lakshmi Mittal's ArcelorMittal (NYSE:MT) (Luxembourg) has also had projects stymied by the obtuse regulatory climate over a period of years.

For related information, see February 2, 2011, article - POSCO Project Decision Boosts India 2012 Steel as Global Industry Regains Momentum.

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