Odisha steel project: Posco needs to file fresh proposal

25 September 2015

South Korean steel major Posco would have to file a new proposal for setting up its proposed $12-billion steel venture in Odisha if it wants to pursue the project.

The company was sounded about it at a recent meeting among officials of the Central government, state government and Posco, convened at Delhi by the cabinet secretary, to break the impasse over the project, hanging fire for 10 years.

"Due to changed circumstances for raw material linkage, Posco has to file a fresh proposal," a senior government official said. "Posco is yet to respond to us on this."

The need for filing anew, according to sources, arises out of denial of allotment of captive mines to the company on a preferential basis following amendment to the Mines and Minerals Development and Regulation (MMDR) Act. With Posco unwilling to take part in the auction process to get hold of a captive mine in line with the provisions of the new Act, there are two ways now to meet its raw material needs.

One is a possibility of a joint venture between Posco and state-owned Odisha Mining Corporation (OMC) for operation of an iron ore mine to be reserved for the state public sector undertaking. The second is a pact between Posco and OMC for supply of raw material to the company from one of the mines owned by the latter.

At the Delhi meeting, the Centre asked the Odisha government and Posco to carry forward bilateral talks on the options, while making clear there would be no exception for Posco on allotment of a captive mine.

The earlier proposal hinged on establishment of the project based on allotment of a captive mine. With that possibility vanishing, the company has to decide on what arrangement it wants to enter with OMC to ensure raw material security if it wants to pursue the Odisha project, sources said.

Posco had first signed a deal with the Odisha government in June 2005, for setting up a 12 million tonne steel plant, in four modules of three million tonnes each.

On expiry of the validity of the deal in 2010, the company had given a new proposal for a tripartite agreement between the Odisha government, Posco India and its Seoul-based parent company.

The draft proposal for the agreement contained a few changes from the one signed earlier, mainly relating to revision of the capacity of each module from three million to four million tonnes, with the first two forming Phase-I and the third module pushed to a later stage, dropping of an iron ore swapping clause, changes in the water sourcing plan, focus on local employment, etc.

Though that proposal was given by Posco in 2011, it could not pass the government's scrutiny till January, 2015, when promulgation of the new MMDR ordinance made it infructuous.

Posco's Odisha project, billed as the single largest foreign direct investment in the country, has been embroiled in protests and delays over land acquisition, review of forest and environment clearances and rows over allotment of captive mines for the past decade.

Though the state government has acquired 2,700 acres land to enable the company set up Phase-I of eight million tonne steel capacity and forest and environment clearances are in place, it is the denial of captive mines on a preferential basis coupled with the present slump in the steel market, which have made the project unattractive for the promoter and pushed it into uncertainty.