Bullish on India, Posco may have another go at setting up greenfield unit

Joint working group with Posco and RINL representatives will be formed to implement investment on land owned by Rashtriya Ispat Nigam Ltd (RINL) at Vizag

Five years after Posco scrapped a $12-billion project in Odisha over delays and local opposition, the South Korean steel major is taking a fresh look at setting up a greenfield plant in India. 

At a meeting facilitated by the Ministry of Steel last month, it was agreed that a joint working group would be formed to implement a memorandum of understanding for investment on land owned by Rashtriya Ispat Nigam (RINL) at Vishakhapatnam. The working group will have representatives from Posco and RINL. Though exploratory talks with the public sector steel firm have been going on, these have picked up pace now. The working group will evaluate specifics like investment and raw material linkages after studying the market.

Confirming the formation of the working group, Posco India Managing Director Sung Lae Chun said, “We are studying how to participate in a fast-growing market like India. This year, steel demand has dropped, but we expect a recovery next year. By 2030, India could have a capacity of 200 million tonnes (mt).” 

The pandemic and lockdown to contain it took a toll on steel demand, with user industries mostly shut during April and May. According to the World Steel Association, India is likely to face an 18 per cent decline in steel demand in 2020, but it may rebound 15 per cent in next year.

The long-term growth story is prompting Posco to review its India options. “Even in the past, Posco was looking at investing in India. We had looked at setting up a plant in Odisha, but that did not happen. India market is very big, so global steelmakers like Posco are exploring opportunities here,” Chun said.

Sources in the know said it could be a five-million tonne plant, to be implemented in phases. "It is possible that a downstream unit focussed on value-added steel could be set up first," they said. RINL has surplus land of around 3,000 acres.

Chun said land and mines were key points for investment. Last time, Posco’s Odisha project had tripped on these counts. The company had signed an MoU in 2005 to set up a 12-mt plant in Jagatsinghpur district near Paradip port. But till 2013, the state government managed to acquire only 2,700 acres and transferred 1,700 acres. The original requirement for land was 4,004 acres, but agitation against land acquisition by locals called for adjustments. 

The final blow, however, was the change in mining laws by the Centre in 2015, which made it mandatory for companies to go through the auction route for captive mines. Earlier, it was on a nomination basis. The same year Posco suspended its project in Odisha due to the lack of progress. The steel major, however, has a downstream unit in India.

Posco was not the only greenfield project that suffered. Land and mines derailed other greenfield projects too, including ArcelorMittal’s. The world’s largest steelmaker finally gained a major foothold in India by acquiring Essar Steel last year under the insolvency law.

Between 2005 and 2006, a slew of MoUs were signed for greenfield projects, totalling about 100 mt, but very few materialised. In the past decade, about 60 per cent capacity addition has been through the brownfield route. 

However, the steel ministry is keen on pushing greenfield plants. A draft policy of the ministry on the promotion of greenfield investments last year stated that the planned capacity expansion of existing players was expected to add 28-30 mt by 2024-25. However, to meet the demand growing at 5.6 per cent, an additional capacity of 25-30 mt would be required, which would need the setting up of greenfield steel plants.