POSCO might build a smaller steel mill than planned in India after failing to secure enough land for what would be the biggest overseas investment in the south Asian nation, two people familiar with the plans said.
The world’s third-biggest steelmaker is looking to reduce the amount of land for the mill and iron ore mine project, said the people, who declined to be identified because they are not authorized to speak publicly. The plant size might be cut to 8 million tonnes from 12 million, one of the people said.
Taking less land might help POSCO clear the way to begin construction in the eastern state of Odisha after more than six years of delay as farmers refused to vacate the state-owned land they have occupied for generations. Pohang, South Korea-based POSCO has kept pushing for the project through the delays, attracted by India’s average 10 percent growth in annual steel consumption during the past six years.
“The land issue is getting worse by the day and the state and central governments have no idea how to fix it,” said Niraj Shah, an analyst with Fortune Equity Brokers India in Mumbai. “Such news will certainly send a wrong signal to overseas investors and malign India’s image as an investment destination.”
POSCO might need only 1,130 hectares, about 25 percent less than the 1,505 hectares currently being sought, to build a factory of lesser capacity, the person said. The state, which has acquired more than 850 hectares of land, halted a purchase in the Jagatsinghpur district in December last year after protests by the local population.
“The state is doing its best to acquire land for the POSCO project,” Odisha Indusatries Minister Raghunath Mohanty said in a phone interview. “It is not feasible to set a deadline, but I hope the process would soon get over.”
POSCO is not considering lowering the planned capacity at the Indian plant, Seoul-based spokesperson Choi Doo-jin said yesterday by phone. Vikas Sharan, a spokesperson at POSCO India, declined to comment.
POSCO has also agreed to remove a clause in its original approval that allowed it to export 30 percent of the iron ore produced at the mine, one of the people said. The clause in the mining agreement with the Odisha state government was being renegotiated last year after it expired. Odisha was known as Orissa until its name changed in November last year.
“We’ve tentatively agreed with the government to remove the clause that allowed us to export part of the iron ore produced at the mine and instead to allow us to sell domestically in India,” Choi said.
The delays since 2005 mean POSCO has already missed out on a 60 percent jump in India’s steel consumption since then. Construction costs are also unlikely to come down from the 520 billion rupees (US$10 billion) forecast in 2005 as costs have surged, one person said.
“Land availability is the biggest challenge in setting up new mills in India,” C.S. Verma, chairman of Steel Authority of India Ltd, the nation’s second-largest producer, said yesterday at an industry conference in New Delhi. “Future mills in India must be more compact that will need less land.”