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Posco’s Indian Steel Project in Doubt After Report

A Posco-India billboard is displayed on National Highway 5 in Bhubaneshwar, Orissa. Photographer: Prashanth Vishwanathan/Bloomberg
A Posco-India billboard is displayed on National Highway 5 in Bhubaneshwar, Orissa. Photographer: Prashanth Vishwanathan/Bloomberg

Oct. 19 (Bloomberg) -- Posco’s proposed $12 billion steel plant in India is in doubt after a government panel recommended scrapping environment clearances given to the world’s third-largest steelmaker.

Three of the four members of the panel suggested that approvals should be canceled because of “flaws in the studies, and shortcomings in the clearances granted” to the project in the eastern state of Orissa, Environment Minister Jairam Ramesh told reporters yesterday in New Delhi. A separate report by Meena Gupta, the head of the panel, asked for conditions to be added to the existing clearances, he said.

Posco’s project, billed as the single-biggest investment by a foreign company in India, has been delayed since 2005 because of opposition from farmers unwilling to give up their land. In August, the ministry rejected a proposal by Vedanta Resources Plc, owned by billionaire Anil Agarwal, to mine bauxite at Niyamgiri hills in the same state, hampering a planned $8 billion expansion.

“The whole Posco issue has been blown out of proportion by the government and this is definitely going to affect foreign investments into India,” said Nikhil Agarwal, an analyst at Kim Eng Securities India Ltd. in Mumbai. “There have hardly been any large scale foreign investments in new steel projects and the situation is unlikely to change in the coming years.”

Posco shares fell as much as 0.5 percent to 490,000 won and traded at 490,500 won as of 12:39 p.m. in Seoul. The stock has declined 20 percent this year, compared with a 12 percent gain in the benchmark Kospi index.

‘No Timeframe’

“There is no fixed timeframe for deciding the future of the Posco project,” Ramesh said. “There’s a fundamental difference between the Posco and the Vedanta projects.”

About 700 families of farmers and fishermen in eight villages will be displaced by the project, which includes a mining unit, a dedicated road, railway and port, a township and a water-supply infrastructure, according to the report that suggested the clearances be scrapped.

“The project has been delayed for a long time and that’s already reflected in the stock price,” said Kim Kang Oh, who has a “buy” recommendation for Posco shares at Hanwha Securities Co. in Seoul. “For Posco, which has been seeking growth in overseas markets by marching into India, such delays may hamper its long-term growth strategy since the domestic market is saturated and competition is increasing.”

Farmer Opposition

Farmer opposition has led to the stalling of $80 billion in planned spending by companies including Posco and ArcelorMittal on steel mills in three Indian states that hold more than half of India’s reserves of iron ore, a key material to make steel. ArcelorMittal is the world’s largest producer, ahead of Baosteel Group Corp. and Posco, according to the World Steel Association.

Given the proposed 12 million ton capacity of the Posco project, equivalent to six of state-owned Steel Authority of India Ltd.’s plants, there was a need to have a comprehensive “environment impact analysis” of both the plant and the port, the report said.

Both the reports by the committee recommended Posco make a comprehensive environmental impact assessment, Ramesh said. The environment ministry’s forest advisory committee will meet on Oct. 25 to review the reports before making a final recommendation, Ramesh said. The members have suggested stricter implementation of the provisions under the Forest Rights Act.

“Posco is still waiting for the final decision of India’s environment ministry,” Choi Doo Jin, a spokesman for Posco, said by phone today.

Left Out

The resettlement and rehabilitation package being offered by Posco to farmers who will be displaced from their land is a “good one” and is superior to the terms laid down by the state government, Gupta said in her report posted on the ministry’s website. Many fishermen living near the plant site along with landless farmers and other laborers have been left out of the rehabilitation plan of the government, according to the report from the three other panel members.

India’s environment ministry had asked the state government of Orissa to halt land acquisitions from farmers occupying the site of Posco’s proposed plant, Choi Doo Jin, a spokesman for the Pohang-based mill said on Aug. 9. The order followed a non-government organization’s claim that more native residents are living in the forest land than the state reported, he said.

ArcelorMittal, the world’s largest steelmaker, faces delays for a $10 billion mill in Orissa and in Jharkhand state. Projects by Tata Steel Ltd., India’s biggest maker of the metal, are faring no better in the two states and in Chhattisgarh.

To contact the reporters on this story: Abhijit Roy Chowdhury in New Delhi at achowdhury11@bloomberg.net; Abhishek Shanker in Mumbai at ashanker1@bloomberg.net.

To contact the editor responsible for this story: Andrew Hobbs in Sydney at ahobbs4@bloomberg.net

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