Citing delays in land acquisition and grant of mining rights, South Korean steel major Posco on Tuesday cancelled its plan to set up a $5.3-billion plant in Karnataka with a proposed capacity to produce 6 million tonne steel per annum. The development promises to be a setback for the central government which is working on measures to relax ceilings on foreign direct investment in a host of sectors to attract more foreign investments.
?With the given market conditions and the significant delay in acquiring the required land in Gadag, we have decided to close our proposed 6 mtpa steel plant in Karnataka. We highly appreciate the industries department (government of Karnataka) and the Karnataka Industrial Area Development Board (KIADB) for their co-operation and cordial support in this regard. In future, if we get an attractive business proposal from the state, we may consider it and return to Karnataka,? Posco India chairman and managing director Yong Won Yoon said in a statement.
Though Posco?s plans for the $12-billion flagship Orissa steel plant ? its first project announced for India ? remains intact, cancelling the Karnataka project sends negative signals to foreign investors since it was planned as a hedge against the original project which was moving very slowly. The company had signed a memorandum of understanding with the Karnataka government in 2010 whereas the Orissa project was announced in 2005.
?We will proceed with a steel mill project in Orissa, which is making progress. The latest move will make us more focused on the project,? the company said.
Though the Orissa project recently received a leg-up with the Supreme Court paving way for a mining licence and the land acquisition is in process, it is still awaiting a final nod from the national green tribunal. Analysts said if all went well, it would still take a minimum of a year for the company to secure mining rights.
This is the second project cancelled by Posco in India. Earlier, it had shelved a joint venture with the Steel Authority of India at Bokaro to produce special grade steel, after the PSU major refused Posco?s proposal to hold majority stake in the JV.
In January 2011, Posco had selected a site at Gadag in Karnataka for a steel plant and notified the KIADB. However, the project could not progress further as land acquisition was held back due to agitations by some farmers and religious leaders. The acquisition process was finally halted in July 2011while the mining scam in the state slowed progress further, the company said.
Posco had deposited Rs 60 crore as advance payment for the land, which would now be returned to it.
?There is no clear policy of the government for acquiring land and compensation to be paid to land owners and for rehabilitation,? a company official said giving reasons for the exit.