Posco, Mesco sign MoU for steel plant in Odisha3 min read . Updated: 16 Jul 2014, 11:46 PM IST
If talks succeed, Posco will dismantle a plant in South Korea, ship it to Odisha, and put it up on Mesco's plant site there
Mumbai: Eager to get started in India after a nine-year wait to secure clearances for its greenfield plant, South Korean steel maker Posco is exploring the possibility of setting up a steel plant in Odisha jointly with Mesco Steel, three steel industry officials said on Wednesday.
A memorandum of understanding was signed between the two companies last month and if their talks succeed, Posco will dismantle a 600,000-tonne Finex technology steel plant in South Korea, ship it to Odisha, and put it up on Mesco’s plant site in the state, the officials said.
“The main purpose of (the) MoU is to conduct co-study for the possibility of business collaboration," Posco India’s spokesperson I.G. Lee said in written replies to emailed questions. “Regarding setting (up) date of new plant and shareholding structure, since this is in too early a stage of co-study, everything remains unknown till the study is finalized," Lee added.
Manish Pande, vice-president of strategy at Mesco Steel, declined to comment.
If Posco is successful in setting up this plant in India, it would be able to start manufacturing locally and integrate it with its processing plants already set up in several locations in India.
Posco would also be able to earn royalty from its patented Finex technology that would mark a breakthrough in India as it would use low-grade iron ore fines without the need to import coking coal and thus bring down costs in a big way.
For Mesco, looking to grow its 1.2 million tonne (mt) steel capacity at Jajpur in Odisha, the agreement will help it acquire a modern technology plant that can effectively use iron ore from its captive mines and a source for fresh capital.
Posco’s 12 mt, $12 billion, greenfield plant project in Jagatsinghpur in Odisha has been hit by controversies since it was conceived in 2005 and is still awaiting a formal handover of land and captive iron ore mines.
Earlier, the project was conceived over 4,004 acres, but now the company has scaled it down to a smaller plant over 2,700 acres to bypass villages that have opposed the project.
“Even though the central government and the Odisha government are trying to help them, they have not made much headway," said one industry executive. “They have an office in Odisha and they want to engage their staff."
Two other executive cited above said Posco has also been in talks with other steel makers to sell its Finex plant.
A plant with Mesco would also mean Steel Authority of India Ltd (SAIL), with whom Posco had an MoU earlier, has lost the chance to build a Finex technology plant at SAIL’s existing plant site in Bokaro.
“The MoU with SAIL expired in 2011 and also the discussion between Posco and SAIL was stopped due to shareholding issues raised by (former) minister of steel (Beni Prasad Verma) since November 2011," Lee added.
Posco and SAIL held talks for many years but were at loggerheads over the management control of the proposed Finex-based plant. While Posco wanted a 51% stake, citing their patented technology about which they are secretive, SAIL said the plant would come up on their land and that mandated management control.
SAIL’s chairman C.S. Verma and the company’s corporate communications department did not respond to a questionnaire asking if the company is still interested in setting up a plant with Posco.
An analyst said Posco’s plant had the potential to change the dynamics of the steel industry as their superior technology would drastically bring down the cost of steel production.
Several Korean companies in the consumer goods and automobiles sector that are already clients of Posco, would increase their purchase of Posco’s made in India steel.
Currently, Posco imports a little less than 2 mt of steel into India, which is processed at its centres in Gurgaon, Hyderabad, Chennai and Talegaon.