South Korean steelmaker Posco could scrap plans for a $12-billion project it had agreed to set up in Odisha a decade ago, following a new law that makes it costlier to source iron ore for the plant, a company spokesman said.
The 2005 project to set up a steel plant was billed as India's biggest foreign direct investment at that time but it has encountered a series of delays. The company waited about a decade to acquire land for the proposed 12-million-tonnes-a-year steel plant, owing to opposition from local tribal groups.
Due to a mining law enacted in March, the company will now also have to buy a mining licence in an auction. Initially, the Odisha government had promised to help the company secure the licence for free.
The new law could raise costs for the company at a time when a global steel glut is depressing prices. "We will have to see how our costs will be, whether it will be viable," said Posco's India spokesman, I G Lee. "We will take a final call only after the auction details are out."
Asked whether the company could skip the auction and withdraw from the Odisha project, Lee said: "Yes."
Through the past two years, Posco and ArcelorMittal, the world's largest steelmaker, have scrapped a number of other projects in India, citing difficulties in acquiring land and mines. Another withdrawal by Posco could dent Prime Minister Narendra Modi's 'Make in India' manufacturing push.
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Odisha mines minister, Prafulla Kumar Mallik, said his government remained keen to help Posco but had not heard from the company. "We had requested the central government for a concession for Posco but the Centre wanted to go for an auction," he said. "Now, it is for Posco to decide if they want to participate in the auction."
Narendra Singh Tomar, Union steel and mines minister, has repeatedly ruled out making an exception for Posco.
Since the mining law was announced in March, Posco has cut a number of jobs in Odisha, given up real estate and not rebuilt temporary site offices that were burned down by people protesting against land acquisition by the company.
"We downsized in April because there was no work," Lee said.
Instead, the company is importing steel from South Korea for its expanding network of processing centres in India. It would raise its processing capacity by about a fifth to 680,000 tonnes through a new plant in Gujarat next year, Lee said.