New state guideline to hit Rs 1.4 lakh cr steel investments

Swapping ban pushes Posco MoU renewal into uncertainty

The Odisha government decision to withdraw the commitment on raw material supply in the MoU (memorandum of understanding) of steel projects, which have not made substantial progress, has put Rs 1.4 lakh crore of investment involving about two dozen companies, including the big ticket ones like Posco and ArcelorMittal in uncertainty.

While the government has ruled out giving assurance of raw material linkage in fresh MoUs, in the case of existing one, a guideline, issued by the steel and mines department of Odisha on extension of validity of MoUs signed for steel projects, explained, “No clause committing grant of /recommendation for grant of Mineral Concession will be retained.”

It, however, added, “Related clauses of the original MoU may be suitably revised providing that the commitments made in the original MoU will be honoured subject to and as far as consistent with the provisions of MMDR Act and MC (Mineral Concession) rules applicable on the date of recommendation.”

Sources said, the MMDR Act does not provide for reservation of resources for private companies. Though the grant of prospecting license (PL) or mining lease (ML) under the act is based on “the first come and first served” principles, the government often go around this rule to pick and choose beneficiaries by invoking Section 11 of the Act which allows it to recommend the case of particular company whose project stands to benefit the state most.

Armed with this special clause of the MMDR Act, the Odisha government had been recommending PL or ML for companies, including Posco, for captive use of the mineral in their projects. But with it getting increasingly difficult to justify which project is in the larger interest of the state and invocation of Section 11 being challenged in various courts, the new guideline of the government is likely to dash the hopes of MoU signed companies, which are yet to take off from the drawing board, to lay their hand on captive mines.

Among the big ticket projects in Odisha, Posco and ArcelorMittal proposed to set up 12 million tonne each with investment of Rs 54,000 crore and Rs 40,000 crore respectively. Both the companies are yet to acquire the land earmarked for their project due to stiff resistance of the locals.

Besides, the other important announcement of the government in the guideline- barring the companies to export or swap minerals allotted for captive use- is likely to create further hurdle in the renewal of Posco’s MoU, whose validity has expired since June, 2010. During discussion with the state government on MoU renewal, Posco had agreed to tone down the swapping clause in the original MoU and said it is ready to swap iron ore within the country, not send it outside and bring in higher quality ore from abroad for blending purposes as proposed earlier.

But the new guideline is likely to disallow the company even domestic swapping of ore, said the sources.