February 5, 2015 / 1:17 PM / 3 years ago

South Korea's POSCO faces another setback in India

A villager walks at the POSCO India Odisha Project site office at Gobindpur village in Jagatsinghpur district, in Odisha, February 7, 2013.Stringer/Files

NEW DELHI/BHUBANESWAR, India (Reuters) - South Korea's POSCO (005490.KS) will have to bid for an iron ore licence to feed its planned $12 billion steel plant in India, a minister said, in a setback for the company that was expecting the government to allocate it a mine without any competition.

The project to be set up by the world's sixth-largest steelmaker has been caught up in a regulatory maze for the past decade, but the company had waited in the hope of getting preferential access to iron ore in Odisha.

But steel and mines minister Narendra Singh Tomar on Thursday ruled out an exception to an executive order mandating auctions for all new mines. This will mean POSCO's costs will likely rise if it does manage to win a mine.

"Even I'll have to bid for a mine if I want one," Tomar said, as the government looks to overhaul the past practice of handing over mines and reduce chances of corruption.

The government's decision, however, goes against the recommendation of Odisha to grant POSCO a mine without an auction.

"It was an international commitment and we had recommended on the basis of the request made by the (previous) central government," Odisha's steel and mines minister  Prafulla Kumar Mallik told Reuters. "If POSCO will have to bid, it will be a setback for the project."

POSCO's India-based spokesman I.G. Lee said the company would wait for more clarity before deciding on the next course of action, and that nothing had changed as of now.

The 12 million-tonne-a-year plant would be the biggest foreign direct investment the country and had been seen as a test case for Prime Minister Narendra Modi's "Make in India" manufacturing push.

POSCO and ArcelorMittal ISPA.AS, the world's top steelmaker, have already scrapped big projects in India citing difficulties acquiring land and iron ore mines.

Amid the delay in setting up the Odisha plant, POSCO's India Deputy Managing Director Ho-Chan Ryu has been asked to go back to Seoul by next week after spending almost seven years in the country in two stints.

Spokesman Lee said Ryu's departure had nothing to do with the state of the project, though a company source said there may have been some connection.

"The situation is not favourable, things have become more difficult and we will have to start from scratch," the top POSCO India official said, declining to be named.

Last month POSCO inaugurated a $709 million steel mill in western India to gradually scale up its presence in the emerging market even as its mega project stays stuck.

Editing by Mark Potter

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