British mining giant Vedanta Resources' plan to operate a US$900 million refinery in eastern India hit a fresh obstacle on Friday when the Supreme Court set new conditions for the project.
Vedanta's battle to mine bauxite to feed the refinery in forests considered sacred by tribals is seen as a test case in India, pitting industrial development against the interests of locals and the environment.
The court refused to let the project in Orissa state proceed on the grounds it could hurt "sustainable development" but it offered Vedanta's Indian unit, Sterlite Industries, the chance to come up with a new plan.
The decision came just over two weeks after Norway's state pension fund withdrew US$13 million in investments in Vedanta, accusing it of "causing serious damage to people and to the environment" in India.
The court said it did not oppose the project in principle but that it needed to be assured of Vedanta's credibility as it had to protect the interests of future generations.
It said Vedanta would have to give around US$180 million in compensation for forest destruction, wildlife management and tribal development. Other conditions included handing over five percent of pre-tax profits annually from mining projects across India to the Orissa government to fund development.
The mining giant will also have to set up a "special purpose vehicle" with the Orissa state government to ensure the conditions are met, the court said.
Vedanta must file an interim application within eight weeks saying if it agrees to the conditions.
"We welcome the court's decision," said Babu Mathew, head of ActionAid India which opposes the mining plans.
But the group remained "very apprehensive" about the final outcome, saying mining operations would "cause irreversible ecological damage" and the "death and destruction of tribals," he said.
Vedanta has been fighting for three years for permission to open cast mine vast deposits of bauxite in the densely forested Niyamgiri hills to supply the refinery it has built nearby.
In the past, the company has denied any wrongdoing and argued the project would be welcomed by residents of the desperately poor region.
In a stinging 2005 report, an environmental panel set up by the Supreme Court accused Vedanta of blatantly violating environmental guidelines.