Home >Companies >News >Posco scraps $5.3 billion Karnataka steel plant project

Mumbai: Posco, Asia’s third largest steelmaker, has dropped plans to build a $5.3 billion (around 31,800 crore today) mill in Karnataka because of difficulties in buying land and delays in securing mining rights.

“We have stopped the project in Karnataka," I.G. Lee, general manager, corporate relations at Posco India, said by telephone from Gurgaon on Tuesday.

The South Korean firm’s bigger project in Orissa, a $12 billion steel mill that is India’s largest foreign direct investment, and other expansion are still on the company’s agenda, Lee said. “There are no changes to other things."

In June 2010, Posco had signed an agreement with the Karnataka government at a global investors meet in Bangalore to set up a 6 million tonne (mt) steel plant. It selected Gadag district for the site the following year.

Posco held meetings with landowners 2011. “However, progress on land acquisition was held back due to agitation by some farmers and religious leaders" and land acquisition was soon halted, the company said in a statement on Tuesday.

The Supreme Court’s 2010 stricture to shutter iron mines because rules were flagrantly broken and their reopening in a regulated manner in April this year further delayed the project.

The depressed global economic situation that has slowed the demand for steel also contributed to Posco’s decision, its India chief said.

“With the given market conditions and significant delay in acquiring the required land in Gadag, we have decided to close our proposed 6 mtpa steel plant in Karnataka," Yong Won Yoon, chairman and managing director of Posco India, said in a statement.

Posco may have given up on Karnataka in order to focus better on Orissa, where it has waited since 2005 to get land to build the 12mt steel plant in Jagatsingpur district, an industry expert said.

“In Orissa, Posco has put in a lot of efforts and they have put in a lot of groundwork," said Narendra Chaudhary, a mining and metals consultant and former executive vice-president and chief executive for Asia and Africa for ArcelorMittal, the world’s largest steel maker. “I think they are committed to Orissa."

Posco has left the door ajar on Karnataka, promising a return if another opportunity comes by.

“We highly appreciate the industries department and Karnataka Industrial Area Development Board for their co-operation and cordial support in this regard," Yoon said. “In future, if we get an attractive business proposal from the state, we may consider it and return to Karnataka."

Its Jagatsinghpur project has inched forward. Posco is set to get a permit to prospect for and mine iron ore, Reuters reported on 10 July, quoting unnamed government officials, after a May Supreme Court order handed a decision on the license to the government.

Lee on Tuesday said the company was also awaiting the handing over of 2,700 acres of land that is currently being acquired by the state government, which will enable it to start building the plant even though its original plan is for a plant spread across 4,004 acres.

“We hope to get it soon, but we don’t know when we might," Lee said.

Jagatsinghpur has seen vociferous protests and also some violence since the project was announced. The company also has to renew its 2005 agreement with the Orissa government as it has expired and must straighten out some contentious terms and conditions, according to government officials in Orissa.

Reuters and Bloomberg contributed to this story.

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