POSCO's $12 Billion Steel Project in Orissa Gets Negative Report from Committee

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Researched by Industrial Info Resources (Sugar Land, Texas)--Integrated steel producer POSCO (NYSE:PKX) (Pohang, South Korea) has received another setback for its proposed $12 billion integrated steel mill and captive port in Kujang Tehsil, in the Jagatsinghpur district of Orissa.

The project has been at a standstill for more than three years. POSCO signed a memorandum of understanding with the state government of Orissa in June 2005 for the steel mill and the license to mine iron ore in the Indian state. The project was envisaged as being built over three phases, each with a production capacity of 4 million tons per year. The first phase was scheduled for completion by the end of next year, while the final completion of all three phases was scheduled for 2015.

Protests by local farmers, who fear the loss of land and livelihood as a result of the project, have caused repeated delays to what has been classified as India's largest foreign direct investment project. Opinion among the eight villages affected by the project is equally divided, and one village, Dhinkia, is so steadfastly opposed that it set up blockades to prevent government and POSCO officials from entering.

During the protests, POSCO continued obtaining clearances and permissions for the plant and port, including environmental impact assessment reports for the initial phase. The Ministry of Environment and Forests (MoEF) issued environmental clearances for both the plant and the port in 2007.

However, in January 2008, the Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act was brought into force, requiring certification before the project could continue. Despite the new law, the MoEF granted final forest clearance to POSCO on December 29, 2009.

In July this year, the government of India, through the MoEF, set up a four-member committee to investigate the matters arising from the proposed POSCO project and to examine compliance with the FRA, following which a final decision would be made on handing over the forest land to POSCO.

The committee's report was released on October 19 and contained several conclusions that could have a far-reaching impact on the POSCO project and other similar large projects. In particular, the report suggests: "The MoEF should take a policy decision that in large projects like POSCO where memoranda of understanding are signed for large capacities and upscaling is to be done within a few years. The EIA, right from the beginning, should be assessed for the full capacity."

The committee is particularly scathing in its conclusion. After recommending several changes in the permitting process, the report concludes: "In the absence of these changes, we fear that projects such as this one will continue to be cleared without adequate scrutiny, resulting in increased displacement, environmental destruction, impoverishment and conflict."

The conclusion goes on to state: "The POSCO project is an example of how a mirage of 'development' can be used in an attempt to bypass the law. Such attempts, if allowed to succeed, will result in neither development nor environmental protection, but merely in profiteering."

It is uncertain at this stage what impact the committee's report will have on another POSCO project in India, the proposed joint venture with the state-owned Steel Authority of India Limited (BSE:500113) (SAIL) (New Delhi), to develop a 1.5 million-ton-per-year steel-making facility at SAIL's existing facility at Bokara, in Jharkhand.

SAIL and POSCO signed a memorandum of understanding in 2007 to form a strategic alliance for cooperation in business and commercial interests. Now the two companies are in talks to explore the possibilities of the joint venture, with POSCO taking a majority shareholding by contributing its FINEX technology and all investments in the plant, and SAIL contributing the land for the project. The joint venture agreement for the project is expected to be signed before the end of 2010.

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