Posco suspends $12-bn Odisha project, may scrap it

A decade after South Korean steelmaker Posco agreed to set up a 12-million tonne steel plant in Odisha, the company has announced a suspension of the project amidst indications that it may scrap the project altogether.

Posco's $12-billion project, which was billed as India's biggest foreign direct investment in 2005, has been hamstrung by local opposition, delays in getting land acquisition and mining lease and a new law that made it costlier to source iron ore for the plant, a company spokesman said.

The company waited in vain to complete land acquisition for the proposed 12 million-tonnes-a-year steel plant amidst opposition from local tribal groups.

To top it all, a mining law enacted by the government in March meant that the company would not get an outright mine lease, but buy a mining licence in an auction.

That could raise costs for the company at a time when a global steel glut is depressing product prices.

The Odisha government had promised to help the company obtain the licence for free to get the project going.

"We will have to see how our costs will be, whether it will be viable," Posco's India spokesman IG Lee said. "We will take a final call only after auction details come."

ArcelorMittal, the world's top steelmaker, has already scrapped several projects in India over the past two years, citing difficulties in acquiring land and mines.

Odisha's mines minister Prafulla Kumar Mallik said his government remained keen to help Posco, but had not heard from the company.

"We had requested the central government for a concession for Posco but the central government wanted to go for an auction," Mallik said. "It is now for Posco to decide if they want to participate in the auction."

The union steel and mines minister, Narendra Singh Tomar, has repeatedly ruled out making an exception for Posco.

Posco is downsizing operations in India and has cut a number of jobs in Odisha, given up real estate and not rebuilt temporary site offices that were burned down by people protesting against land acquisition by the company.

Posco is importing steel from South Korea for its expanding network of processing centres in India. A free-trade agreement between the countries means South Korean companies pay little or no tax on steel shipped to India.

However, it will raise its processing capacity by about a fifth to 680,000 tonnes through a new plant in Gujarat next year, Lee said.