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Posco, the controversial South Korean multinational company (MNC), is reported to have decided to pack off from its $12 billion steel complex in Odisha, thanks to powerful protests by tribal groups who have taken strong exception to iron ore mining by the company in the Khandadhar region. A US-based news site, reporting on the development, has called it“a blow to Prime Minister Narendra Modi's hopes to convince companies to make in India."
The site, bloomberg. com, said, South Korea’s biggest steelmaker company Posco’s Odisha project was the nation’s “biggest foreign investment”, yet it has “failed to take off since 2005 because of opposition from local farmers and the failure to secure iron ore mining leases.” It claims, the withdrawal has happened despite the fact that “the steelmaker was able to overcome local resistance and get the state to acquire about 2,700 acres (1,093 hectares) of land for the first phase.”
“Securing supplies of iron ore, a key steelmaking raw material, has proved tougher”, the site said, quoting Jagannadham Thunuguntla, head of fundamental research at Karvy Stock Broking Ltd to say that “Posco has waited for a very long period and probably they thought it was time to take a final decision on their future course.”
Quoting market sources, the site says, “When Posco first proposed the investment, it was very big and was considered a game changer. But now already a lot of money is coming into India so any decision by the company may not matter much to the market.”
The development has taken place following the South Korean company’s decision to shut its engineering and construction unit in Gurgaon. Before that, in 2013, it scrapped a plan to build a steel plant in Karnataka because of land and mining delays. In 2013, ArcelorMittal, the world’s biggest producer of the alloy, pulled out of its steelmaking Odisha project, citing delays in getting permits.
Meanwhile, Posco has sought a “refund” of Rs 27.5 crore ($4.4 million) it paid in 2006 for a 10 percent stake in the rail infrastructure firm mandated to lay the tracks, according to two people. It has also asked the Odisha Industrial Infrastructure Development Corp (IDCO), to return money paid for the lease of seven acres of land, which has remained pending.
In a commentary on the development, writing in the site’s Bloomberg View, Dhiraj Nayyar has said, Posco’s pullout has taken place because of the new Government of India policy under which the highest bidder would be allowed any lease.
Nayyar said, “It's the government's success rather than its policy failures that appear to have driven out the steelmaker”, adding, “On the heels of a lucrative auction of telecom spectrum, which garnered bids totaling a record $18 billion last week, the government is set to sell off iron ore and the rights to limestone mines by auction as well.”
“Under the old regime, the state would have allocated these kinds of resources to industry at a nominal price. Now that the government is looking to maximize profits by putting them up for bids instead, Posco has apparently decided that the additional costs make the Odisha project unappealing”, the site underlined.
According to Nayyar, “An obsession with selling natural resources at the highest possible price may put an unnecessary burden on highly indebted private companies, not to mention consumers who want low-cost, high-quality goods and services. The goal should be a clean, transparent process that maximizes benefits for India, not its often inefficient state.
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