Seoul (South korea): Half a decade after announcing the project, work is yet to begin on Pohang Iron and Steel Co. Ltd’s (Posco) proposed 12 million tonnes per annum (mtpa) steel mill in Orissa because of delays in securing regulatory approvals and continuing protests surrounding land acquisition. The project was expected to be India’s largest foreign investment at the time of announcement. Posco, South Korea’s biggest steel producer and the world’s fourth largest, is evaluating options, including reviewing the resettlement plan for people from whom land was acquired for the proposed plant and, in the worst case, scaling down the project size.
In an interview, Ki-hong Park, executive vice-president and head of Posco’s growth and investment division, said the Orissa project was the steel maker’s “No.1 priority” among all its global plans. Park oversees the company’s plans, including those in India, from the company’s Seoul head office. Edited excerpts:
The sailing hasn’t been smooth for Posco in India. What has been the experience like?
We are still very interested in India, both as a market and a production site. In the last six years, we have struggled to get the necessary licences and haven’t been successful in starting work on the Orissa project so far. However, we have learnt a lot in the process. We expect steel consumption in India to grow rapidly over the coming years. Having done the groundwork over the last six years, we are certain that we will get a first-mover advantage in India, even if it takes a little time for our project to commence.
Learning from experience: Park says the firm became flexible in negotiations after it learnt more about Indian culture and people.
You said you have learnt a lot. What have you learnt?
We became flexible in our negotiations for the Indian project as we learnt more about Indian culture and people. India is a very democratic country and one needs to be careful about legal issues.
What is the status of the Orissa project now?
We now have all the necessary permissions from the central and state governments. Some local protests are holding up land acquisition but we hope to be able to acquire the land at the earliest and begin construction thereafter. We are considering making some changes to the scheme of settlement with land losers to resolve the issues amicably. We haven’t exactly decided on the changes, but if it goes well, we can begin work soon.
Another issue is that of securing mining rights (for captive iron ore). The matter is in the Supreme Court at present and we hope that it will be solved in favour of Posco.
If all other issues are resolved, will you consider purchasing iron ore from the market to start operations in Orissa?
We are flexible on that issue as well. We can consider buying iron ore from the market to begin production but eventually hope for a captive mine. We had discussions with the Orissa government and were promised mines. We need procurement at favourable prices and buying ore at market rates is not an option in the long term.
The total land required for the Orissa project is around 4,000 acres, but the disputed portion is only around 438 acres. Can’t Posco let go of that land and scale down the project a little bit?
It is a not a serious option for us at the moment to think about scaling down the size of project. Steel companies get affected by scale. The optimum size of a steel making facility in one area should be 10 mtpa. We chose Orissa because we thought it will be possible to achieve this size there and therefore our original plan was to build 12 mtpa in Orissa. If our original plan is verified to be impossible then we may scale down the project to 8 mtpa.
Your plans for a steel plant in Karnataka also ran into rough weather surrounding land for the project. What is the situation there?
Progress on the Karnataka project has stopped as the chief minister has changed. Also, the controversy surrounding mining in the state needs to be resolved first. We don’t see any development there in the near-term and are not sure when we can resume action on that front. If the state government identified an alternate location for our proposed steel plant there, we will consider it. We think even after 10 years there will be enough demand for steel in India and it will be advantageous to have two units (Orissa and Karnataka) producing up to 20 mtpa.
Have you thought of roping in local partners in projects like those in Karnataka and Orissa to help with the process of setting up your plants?
We have had a number of discussion with various Indian companies about potential collaborations. We are discussing with SAIL (Steel Authority of India Ltd) about the possibility of building an upstream steel project using our Finex technology. For the Karnataka project also, we are open to a joint venture there with an Indian company if it is a good deal. Even in Orissa, we are open to a collaboration if it helps the project, though we feel we have enough expertise and relationships after being there for six years. Access to resources and markets are the two important factors for us in considering a tie-up with any company. If we get into a tie-up with an Indian company, we will look to expand the reach of the joint venture to the world, beyond India and (South) Korea. Recently, some Indian mills have evinced interest in some sort of cooperation with Posco, but those discussion are at a nascent stage.
There are concerns over another possible economic slowdown. How will such a downturn impact Posco’s India plans?
Though we believe we have enough financial resources, an economic slowdown obviously has an impact on investment plans. But the Orissa project is No.1 priority for Posco and any recession will not have an impact on our investment plans for the project.
There are frequent protests over industrial projects in India, usually surrounding land acquisition. What is your view on such protests as a foreign investor?
Protests by local people against industrial projects in their area can be a big obstacle for foreign investors. At Posco, we attach utmost importance to social responsibility and mutually beneficial activities. There are protests against industrial projects in (South) Korea as well. We have observed that if we can show our heart and mind to the people, then they can be persuaded.
Posco began as a government company, but now more than 50% of the ownership is privately held. But we still invest a lot of money in environment and social responsibility. Growing along with our neighbours is very important for us. We won’t arm-twist anyone. If the problem cannot be solved, we will wait, but won’t be aggressive.
Posco has frequently changed the head of its Indian operations and also there have been some reports of people being asked to leave. What is the current situation?
Around one-and-a-half years back we started retrieving a lot of our senior executives from India, back to Korea, as the project was not moving. However, since July, we are sending a lot of our top executives to India again. The first head of our India business was of the rank of an executive vice-president, but we had replaced him with another executive of the rank of a general manager. We have elevated the rank of the India business head again and the new chief executive (who joined in September) is of an executive vice- president rank.
You are present in businesses other than steel as well. Are there other synergies Posco can explore in India?
If our steel business in India is successful, we can invest more in other businesses like energy, construction and materials other than steel. We can also help Indian companies establish a presence in the information technology space in Korea. Posco will be a good friend to the Indian economy.