Mumbai: The Essar Group has abandoned plans to develop a new oil refinery in Iran that would violate US sanctions on Tehran, Minnesota governor Tim Pawlenty said.

Essar, which recently bought a Minnesota steel company, had considered working with Iran to build the refinery and bidding on exploration blocks, Essar Group Americas president Madhu Vuppuluri told Pawlenty in a letter dated October 31. But he said Essar Group would abide by laws limiting operations in Iran.

The move came after Pawlenty flew to India to discuss Essar''s Iran work and potential conflicts with US law.

Pawlenty said Essar Group''s unit Essar Global would proceed with development of a planned steel plant in Minnesota.

The US state department declined to comment specifically on Essar, but a department official, speaking on condition of anonymity, said, "If this Indian company has decided it''s in its best interest to back away from dealings in Iran, that''s excellent."

US companies are prohibited by law from working in Iran, although foreign affiliates of US companies, including one linked to oil services company Halliburton, have conducted business there.

Essar Group closed on the purchase of privately owned Minnesota Steel LLC on October 22, ahead of the plan by Essar Group and the National Iranian Oil Refining Distribution Company to jointly build a 300,000 barrels per day (bpd) refinery in southern Iran early next year.