Posco chases India dream again, thanks to IBC and rising steel capacity

South Korean steel major Posco is making a dash at setting up a steel plant in India. Yet again.

 

End-October, Sajjan Jindal-controlled JSW Group and Posco signed a memorandum of understanding (MoU) for collaboration in steel, battery materials and renewable energy sectors in India. The battery material is related to electric vehicles. The renewable energy is for captive requirements of a 5 million tonne integrated steel plant to be jointly set up by JSW Steel and Posco.

 

“Posco’s technical excellence, combined with our project execution capabilities, makes the partnership a win-win proposition,” Jayant Acharya, joint managing director and chief executive officer, JSW Steel, told Business Standard.

 

The location of the new plant is not yet final, but Odisha is an option. If that happens, Posco’s two-decade long journey in India will have come full-circle. 

 

 

Rush of MoUs

 

The early part of the 2000s, leading right up to the global financial crisis in 2008, was a frenzied time for the Indian steel market. From marquee global names such as Posco and ArcelorMittal to a long list of domestic steel companies, everybody was keen to grab a slice of the growing market.

 

Till 2008, at least 193 MoUs were signed with a total planned capacity of 243 million tonnes (mt) across the states of Odisha, Jharkhand, Karnataka, Chhattisgarh, and West Bengal. The likely achievable capacity by 2019-20 (FY20) was expected to be more than 290 mt.

 

But only a handful took off. Most tripped on either land or captive mines. Some got delayed inordinately.

 

Nearly two decades on, India’s steel capacity stands at 172.40 mt, as of FY24, a pale shadow of the vaunted dream of 300 mt. But the country has moved up many notches in the league table for steel production and is second to China, albeit a distant one.

 

Posco’s India story

 

In June 2005, the South Korean steel major inked a memorandum with the Odisha government for a 12 mt integrated steel plant at an estimated cost of Rs 51,000 crore. The project however became a talking point for not just its scale but also the resistance it faced over land acquisition. The final blow came from a change in mining laws by the Centre in 2015, which made it mandatory for companies to go through the auction route for captive mines as opposed to allotment on a nomination basis. The same year, Posco suspended its project in Odisha for lack of progress.

 

As the project dragged on, Posco persevered to get a foothold in India by partnering with private and public sector companies. Between 2010 and 2011, it engaged in discussions with state-owned Steel Authority of India Ltd for setting up a plant. However, differences cropped up on the shareholding structure.

 

In 2015, Posco signed a memorandum of association with the Miglani family-controlled Shree Uttam Steel and Power for a 3 million tonne plant. That did not progress, as the Uttam group ran into problems.

In 2019, it signed an agreement with state-owned Rashtriya Ispat Nigam Ltd. The plan came to naught when the Centre decided to privatise the public sector undertaking.

 

This was followed by a non-binding agreement with the Adani group in January 2022 to explore business cooperation opportunities, including setting up a green, environment-friendly integrated steel mill at Mundra, Gujarat. The investment outlay was pegged at $5 billion.

 

Posco’s shot at an upstream steel facility in India may have proved to be an endless wait, but in the interim it managed to set up a downstream unit in Maharashtra.

 

Window of opportunity

 

Posco ’s bumpy ride in India is not an isolated case. Sometime in 2012, steel tycoon Lakshmi Mittal let off steam at a World Steel Dynamics conference in New York. India was putting progress at risk and subjecting hundreds of millions to remain in poverty longer than previously anticipated, he said.

 

At that time, the United Progressive Alliance was in power at the Centre. Mittal’s comments came against the backdrop of a six-year wait to get a greenfield steel plant in India off the ground.

 

ArcelorMittal had signed an MoU with the Jharkhand government in 2005 for a 12 mt plant. But a tardy pace prompted it to sign another MoU with the Odisha government for a plant of similar size. In 2010, it signed an MoU with Karnataka. None materialised.

 

Opportunity came knocking again when the Narendra Modi-led National Democratic Alliance government enacted the Insolvency and Bankruptcy Code (IBC) for resolution of stressed assets.

 

After a protracted legal battle, ArcelorMittal, jointly with Japan’s Nippon Steel, acquired Ruia family-owned Essar Steel for $5.7 billion. And the joint venture ArcelorMittal Nippon Steel India (AM/NS India) hit the ground running. It is now in the middle of an expansion to 15 mt at Hazira, Gujarat. There are plans to take the capacity to 40 mt through a mix of brownfield and greenfield projects.

 

To cut the wait for a new plant or for ready access to market, Indian steelmakers – Tata Steel and JSW Steel – also paid top dollar for acquisitions.

 

Greenfield a pain point?

 

Land acquisition, resettlement of people, getting all the clearances – it is a long-drawn-out process.

 

“It will often not happen as fast as one would like it to happen,” Tata Steel managing director and chief executive officer T V Narendran told Business Standard in a recent interview. “Given the Kalinganagar experience, we acquired Neelachal and Bhushan Steel because we knew that it would be a faster way to grow. And Neelachal has 2,500 acres, so the value goes beyond the 1 mt plant.”

 

 Tata Steel has learnt the value of land the hard way. In 2004, it signed an MoU with the Odisha government for an integrated steel plant at Kalinganagar, but in 2006 police firing over land acquisition claimed lives and set the project back. Commercial production started only in 2016.

The Kalinganagar plant is now going up to 8 mt. The Neelachal facility is just across it.

 

Through the insolvency law, JSW Steel acquired Bhushan Power & Steel, which has been ramped up since. It can be taken to 10 mt as more land is available. That makes all the difference as land acquisition continues to be an uphill task.

 

Indian Steel Association secretary-general Alok Sahay says setting up a greenfield steel plant has several challenges. “Land acquisition, rehabilitation and resettlement of people is the biggest issue. Statutory clearances for forest land, environment are cumbersome,” he says.

 

ICRA assistant vice president Sumit Jhunjhunwala says land clearances used to be and will remain the first and foremost bottlenecks in setting up a greenfield project. “But, as companies bag mines at a high premium, logistics management is becoming equally crucial for the viability of the project,” he says.

 

A major steel producer points out that some states are willing to allocate land. However, as India targets 300 mt capacity by 2030-31, most major steel producers are focusing on expansions through brownfield projects.