Q+A - Conditions imposed on POSCO project approval

NEW DELHI Mon Jan 31, 2011 2:35pm IST

Employees of steelmaker POSCO talk behind the company's logos at the company's headquarters in Seoul October 25, 2010. REUTERS/Truth Leem/Files

Employees of steelmaker POSCO talk behind the company's logos at the company's headquarters in Seoul October 25, 2010.

Credit: Reuters/Truth Leem/Files

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NEW DELHI (Reuters) - India's environment ministry approved South Korean POSCO's $12 billion steel mill on Monday, a boost for foreign investment and big ticket industrial projects in the face of strong environmental concerns and local protests.

Here are some questions and answers about the conditions imposed on the approval of the project, which has been delayed by three years by regulatory hurdles and local protests:

WHAT IS THE PROJECT?

The world's third-largest steel company wants to set up a mill in the eastern state of Orissa to produce 12 million tonnes of steel every year. POSCO also has plans to build a 6 million tonnes-a-year plant in the southern Karnataka state and another mill to produce 3 million tonnes a year in central India.

But the Orissa plant has faced problems, and while a three-year wait for clearance from the environment ministry ended on Monday, other hurdles remain in the form of local protests.

WHY IS THE PROJECT IMPORTANT?

The plant in Orissa is billed as India's biggest foreign direct investment, and its progress has been closely watched by prospective investors as a reflection of India's investment climate, as the Asian giant balances economic and industrial expansion with ecological concerns.

The prime minister's office monitored the project, signalling the importance the government accorded it, and its desire to develop closer ties between New Delhi and Seoul.

WHAT PROBLEMS WERE FACING THE PLANT?

POSCO signed the agreement for the Orissa mill in 2005 and it was scheduled to begin production by end-2011, but local protests, environmental worries and litigation over the related mining concession have delayed the project.

In August, India's environment ministry ordered a halt to all work on the project, including land acquisition, while a panel investigated if the Forest Rights Act that seeks to protect forest land and settlers had been violated.

That panel gave a split verdict after which Environment Minister Jairam Ramesh asked a new expert panel to review whether the proposed mill can be given green clearance.

WHAT ARE THE CONDITIONS IMPOSED BY THE CLEARANCE?

The ministry approval imposes 60 new conditions on the project, in addition to those first stipulated in the 2007 approval. None are likely to hamper POSCO's plans.

The ministry imposed 28 new conditions on the steel mill and power plant, including the assurance of air quality standards and water sustainability for local irrigation, and ordered POSCO to spent 2 percent of annual profits on social responsibility programmes.

The mill's dedicated port must meet 32 new conditions as part of the clearance, including protecting the shoreline from erosion, developing a conservation plan for turtles and other local animals, and assessing the financial impact on the local fishing industry.

WHAT DOES THE APPROVAL SIGNIFY?

The minor conditions imposed by the ministry may show a more business-friendly approach from Ramesh, after a series of cancellations and delays to billion dollar industrial projects.

In the concluding remarks of the approval, the statement noted that projects such as POSCO's "have considerable economic, technological and strategic significance for the country" that must be balanced with environmental concerns.

The approval will be welcomed by those in India who champion rapid development, and will likely boost the country's foreign investment credentials after earlier fears that the project would be cancelled.

HOW HAVE LOCAL PEOPLE REACTED TO THE PLANS?

POSCO requires 4,000 acres (1,600 hectares) of land, of which 2,900 acres is forested. The project has been hit by protests from farmers who fear losing their livelihood since clearance for the forested land was given in 2008.

Agriculture-dependent local residents, including some who claim tribal status and live in the mineral-rich region, oppose giving up their properties for mines and factories, and their continued resistance led to the regulatory probing from state and federal authorities.

In some areas of eastern India, including Orissa, where the central and state governments have struggled to contain a Maoist insurgency, rebels often try to tap local resentment against industry projects as a recruiting tool.

DO MORE PROBLEMS LIE IN WAIT?

Probably not. POSCO does faces another legal challenge: a local firm also seeking a concession has challenged the concession granted to the South Koreans, and is proceeding with a legal case against the Orissa state government.

That decision on the mining concession lies with Supreme Court, but the litigation is unlikely to hold back the mill's construction now the green nod has been given.

ARE POSCO'S HEADACHES UNIQUE IN INDIA?

No. The South Korean company is among several corporations, including London-listed Vedanta Resources, whose Indian projects have come under scrutiny by an environment ministry that has been tightening rules.

In October, the ministry threw out Vendanta's planned expansion of its aluminium refinery, also in Orissa, after its bauxite mining plans were deemed illegal.

Plans by Hindustan Construction Co's Lavasa to build a huge $31 billion city in the hills outside of the western city of Pune were halted in November by the ministry, which this month offered its blessing in return for a financial penalty and the creation of an restoration fund for the environment.

(Additional reporting by Henry Foy; Editing by Alistair Scrutton)

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