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Is POSCO getting into Orissa quicksand?

Published by MAC on 2005-07-11

Is POSCO getting into Orissa quicksand?


11th July 2005

The biggest hurdle which the Korean firm can encounter and one which Orissa Government officials will try to gloss over is NGOs' opposition

POSCO's proposal to export iron ore has met with opposition, being viewed as sale of family silver.

POSCO, THE South Korean steel giant, recently entered into a memorandum of understanding with the Orissa Government to establish a 12 million tonnes a year steel plant. This can turn out to be the biggest foreign direct investment coming into India. POSCO might have decided on this investment on the basis of three factors.

One is India's geographical proximity and the fact that it can become the next China in terms of growth in steel consumption. The second is India's low wages in comparison with South Korea's and the ready availability of steel making skills. The third is Orissa's rich mineral deposits.

The State accounts for around 30 per cent of India's iron ore deposits. The ore is high grade haematite, with a minimum of 58 per cent iron content. The proved recoverable reserves amount to about 1.5 billion tonnes, with another 1.5 billion tonnes probably recoverable. Most of the ore is found just in the two districts of Keonjhar and Sundergarh. Orissa has also substantial reserves of other minerals which go into steel making such as coal - 51.57 billion tonnes (24.37 per cent of the national deposits), dolomite - 434 million tonnes (10 per cent) and limestone - 1.03 billion tonnes (1.36 per cent).

POSCO will have to compete with a number of claimants for Orissa's iron ore. The Central Government owned Steel Authority of India already has its 1.8 mtpa integrated steel plant at Rourkela set up over four decades ago. There are plans to increase this capacity to three million tonnes in the coming years. On top of this, in the past two years, the Orissa Government has received around 40 proposals from various Indian and foreign parties for establishing new steel plants in the State with a total proposed capacity of over 44 million tonnes a year. Obtaining mining leases in India involves a lot of political networking. Can POSCO, a foreign company, negotiate this local political jungle in the face of so many domestic contenders for the ore?

The major qualitative drawback of the Orissa iron ore is that it contains a high amount of alumina. Generally, Indian steel plants tend to counteract the high alumina by charging quartzite in the iron making blast furnaces. This leads to lower productivity in the blast furnaces.

POSCO, it is learnt, plans to tackle the problem by blending it with imported low alumina iron ore and, in exchange, export the Orissa ore. This proposal has become a contentious issue, with the Opposition political parties, particularly those of the Left, viewing the proposed exports as sale of family silver. They have threatened to physically block the movement of export ore to the ports. Even the domestic steel industry does not favour this export, fearing a shortage of ore in future. Ironically, at present Orissa ore is now exported.

Orissa is one of the most backward States in India with primitive infrastructure. With much of the iron ore deposits located in forest areas, getting environmental clearances for road and rail work, mine development, overburden management and other formalities will run into protracted delays. This is because Indian administration runs at an extremely slow place. On top of this, in the last decade, a number of NGOs (non-governmental organisations) have set themselves up as environmental watchdogs which do not hesitate to tie up mining projects in protracted litigation and Indian courts are notoriously slow paced.

Tatas' missed opportunity

In the late 1990s, Tata Iron and Steel Company, had decided to set up a five million tonne plant at Gopalpur in Orissa. That project never took off because the promised rail line from the ore mine in the interior to the port did not come up. It was unfortunate for Tata Steel's fortunes since the new plant was envisaged when steel prices were at the bottom end of the cycle and steel plant equipment were then available at rock bottom prices. If the plant had come up in time, Tata Steel would be reaping the advantages of the current high steel prices.

The biggest hurdle which POSCO can encounter and one which Orissa Government officials will try to gloss over is the opposition from NGOs and naxalite groups. Many of Orissa's mineral deposits are located in areas which are also the home of tribals who form 25 per cent of the State's population. In the early years after Independence, these tribals were innocent and it was relatively simple to coax and cajole them to give up their grazing and agricultural land for mines and industrial projects by offering some compensation.

The circumstances are vastly different today. Educated and organised by NGOs and radical groups, the tribals are longer ready to move out of their ancestral habitat.

Indian media tend to be sympathetic to their cause in reporting confrontation with State authority in eviction cases. This can, in turn, bring up embarrassing global attention.

In the last few years, naxalites have made considerable ingress into tribal areas and these insurgents are against mining and industry. The most famous case of a major project getting stalled in this manner is that of Utkal Alumina International Ltd. The company was promoted by a consortium comprising two large Indian companies and two multinationals to set up a one million tonne alumina refinery using Orissa's huge bauxite deposits.

The Orissa Government granted them a mining lease in 1993 but the project never took off. It ran into opposition from the tribals of the lease area.

There were violent demonstrations, police firing, court cases and the lot. Ultimately, one of the foreign companies and an Indian partner withdrew from the project, which is still languishing in the paper stage. Similar opposition has impacted other proposed bauxite mining projects in the State. It will be interesting to see whether POSCO can negotiate through such quicksand considering the fact that the Chief Minister, Navin Patnaik, who has been quick to welcome the company, faces considerable opposition within his own party.

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