India will this month resume the compulsory land purchases to enable Posco (005490), Asia’s third-largest steelmaker, to begin building a $12 billion steel plant, said three people familiar with the plans.
The Odisha state government will acquire another 700 acres, adding to the 2,000 already bought, said the people, who asked not to be named because they aren’t authorized to speak before an official announcement. The land will be given to the South Korean steelmaker in October and construction could begin by the end of the year, they said.
The factory in the eastern state, billed as the biggest foreign investment in India, has been delayed by more than seven years by farmers refusing to vacate government-owned land they have occupied for generations. A revival of the state’s land acquisition process may signal the government’s commitment to push through stalled investments to resuscitate an economy growing at the slowest pace in three years.
“Let’s see if they are actually able to acquire land this time,” Niraj Shah, a steel analyst at Fortune Equity Brokers Ltd., said in Mumbai. “This process has been going on for years. Even if Posco gets the land, it will take years to build the factory and tie up its raw material needs.”
Posco is betting on rising steel demand from India’s burgeoning middle class and government infrastructure initiatives. The plant will produce 8 million tons of steel, two-thirds the size of the project originally envisaged.
Indian gross domestic product rose 5.5 percent in the three months through June from a year earlier, a pace close to the three-year low of 5.3 percent in the first quarter. Inflation eased to a 32-month low of 6.87 percent in July while remaining the fastest among the largest emerging nations.
Posco is still waiting for a permit from the environment ministry before it can start building the plant in the Jagatsinghpur district, one person said. India’s National Green Tribunal in March suspended an earlier clearance from the ministry, asking for another review of environmental concerns and recommendations to mitigate against any adverse impact before final approval.
“The state may be preparing to restart land acquisition but many people in the region are not happy with the project as it threatens their livelihood,” said Prasanth Paikare, spokesman for opposition group Posco Prathirodh Sangram Samiti. “We will organize locals who are unwilling to give up land and have rejected the compensation package.”
The company and the state government in 2010 agreed to compensate the local population by offering money for land, jobs at the plant and allowances to sustain livelihoods in the interim.
Posco remains committed to its original plan of building a factory with a 12 million ton capacity, Posco India Deputy Managing Director Ho-Chan Ryu said on March 1. Posco India Chairman and Managing Director Yong-won Yoon said the same day the seven-year delay could add 20 percent to the original cost of the plant.
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