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Posco Says Cost of India Plant to Increase 20% Following Delays

Posco (005490), the world’s third-largest steelmaker, said the cost of its proposed plant in India will increase at least 20 percent as land-acquisition and government delays have set the project back by more than six years.

The company will arrive at a final figure after it secures land for the project, estimated at $12 billion in 2005, Posco India Chairman and Managing Director Yong-won Yoon said today in an interview at Paradeep, near the plant site in the eastern state of Odisha. Construction may start this year, he said.

The project, billed as the biggest overseas investment in the South Asian nation, has been hampered as farmers refused to vacate the government-owned land they have occupied for generations. The Pohang, South Korea-based company has endured the delays, attracted by India’s average 10 percent growth in annual steel consumption over the past six years.

The government has taken over 2,000 acres and Posco will seek transfer of the land after 2,700 acres, or about two-thirds of the area needed for the project, has been acquired, Yong-won said. The initial annual 8 million metric ton capacity will be built in two equal phases, Deputy Managing Director Ho-Chan Ryu said in the same interview. Construction will take about five years, he said.

Posco gained 0.5 percent to close at 416,000 won in Seoul trading, compared with a 1.3 percent increase in the local benchmark Kospi index. The stock has gained 9.5 percent this year, underperforming an 11 percent gain in the Kospi.

Security Issues

The company remains committed to its original plan of building a 12 million ton project, Ho-Chan said. The balance of capacity will come after land-acquisition issues have been settled with the villagers, he said. Security is an issue at the site, Yong-won said.

Posco is looking to reduce the size of land for the project from the original 3,719 acres, said two people last month, declining to be identified. The plant size may be cut to 8 million tons from 12 million tons, one of them said.

Posco agreed to remove a clause in its original approval that allowed it to export 30 percent of the iron ore produced at the mine, one of the people said. The clause in the mining agreement with the state government was being renegotiated last year after it expired. Odisha was known as Orissa until its name changed in November.

Steel Demand

India’s steel ministry in November estimated the country’s demand may grow at 9 percent per annum over the next five years. Posco and rivals including ArcelorMittal, the world’s top producer, are looking to build steel factories in India on expectations the consumption there will outpace global demand.

ArcelorMittal has $20 billion of planned projects in the states of Odisha and Jharkhand and has also waited more than six years because of delays in securing approvals and land. The two companies have also planned investments in a proposed factory in the southern state of Karnataka.

ArcelorMittal (MT) may secure all the land for its $6.3 billion plant in the southern state of Karnataka by this month, state Industries Commissioner Maheshwar Rao said on Sept. 20.

To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net.

To contact the editors responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net; Andrew Hobbs in Sydney at ahobbs4@bloomberg.net

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