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State law department objects to MoU renewal with Posco

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The Orissa law department has objected to the proposal to extend or renew the memorandum of understanding (MoU) signed with the Korean steel maker Posco, saying that it will be illegal to extend the validity of an expired MoU.

The five-year term of the signed between the Orissa government and in June 2005 for setting up of a 12 million steel plant at Paradip, had lapsed in 2010. The two parties had been in negotiation since for renewal of the MoU with some changes in original terms and conditions.

The MoU hurdle has further queered the pitch for the steel giant which was facing problems in getting the project off the ground due to agitation by the locals to land acquisition and delays in getting statutory forest and environment clearances.

“In the instant case it appears that 5 years have already expired. So, after expiry of the period of validity, extension of the same may not be possible. Extension is made prospectively before the expiry of the original MoU,” the law department said.

In the absence of a valid MoU, the state government was often criticised by the opposition political parties for going ahead with land acquisition and other facilitating work for the project.

The law department, although did not see any legal problem in going ahead with land buying without a proper MoU, suggested that the state government must sign a tripartite agreement with Posco India and its parent company based in South Korea. It also offered a way out to validate all the project related work done after the expiry of the MoU.

The law department’s comments were discussed threadbare in a high level meeting of senior bureaucrats chaired by chief secretary BK Patnaik this week. Apart from the law secretary, senior officials and secretaries of steel and mines and industries department took part in it.

The meeting decided, “An instrument (a legal agreement or deed) may be signed allowing further time for establishment of the project after obtaining orders of the government. The instrument will contain a clause providing that the actions done pursuant to the provisions of the original MoU after expiry of the validity period will be treated to have been done as per the instrument,”

“The instrument may contain the details of revised clauses or new additions with a provision that the clauses not specifically revised, will remain as such as provided in the original MoU,” the group of officials recommended.

It may be noted two weeks before the expiry of the MoU, Posco India had applied for its renewal on June 8, 2010. However, the state government had wanted some changes in the terms and conditions of the original MoU, particularly in reference to raw material swapping clause and addition of new clause on prioritizing jobs for locals. The difference between the two sides on these issues had delayed the renewal process.

The state government, after dragging its feet over MoU renewal for more than a year, has shown interest to make progress in the formalities, ostensibly after the Prime Minister assured the South Korea President about speedy expedition of clearances for the project last week.

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