Ore swap key to Posco deal

After prolonged negotiations with the Orissa government, Korean steel major Posco's decision to enter India hinges on a single issue "" how much of iron ore 'swap' is the state government willing to allow.

While Posco wants a 30 per cent swap between the iron ore dug from India to that imported from Brazil, the government is willing to allow up to 15 per cent.

Posco officials told Business Standard the quality of iron ore in India was not meeting the needs of Posco's quality standards and hence swap with ore containing greater alumina content would be inevitable.

"Ore from Brazil is almost 60 per cent more expensive that what is available in India or what could be imported from Australia. But we still want to do this get good quality steel out of our proposed plant in India," said a Posco official.

While it is understood that Posco may bring in equity capital of $200 million to start its operations in India, company officials said that money was not an issue for the steel conglomerate.

"The investment could be routed through Posco Investments in Hong Kong and Korea. Money is not an issue," said the Posco official.

After intense negotiation between Orissa state officials and Posco for the last six months, the two parties are now heading towards concluding the deal.

The date of signing of memorandum of understanding (MoU), however, is yet to be finalised, though sources close to the deal suggested that the last week of June may see the two parties signing on the dotted line.

Both parties had earlier agreed to sign the MoU on April 14, which had to be postponed due to disagreement on some of the points on MoU including the issue of exporting iron ore out of India.

The $12 billion dollar, or 10 million tonne steel plant planned by Posco could be the single largest FDI to flow into the country. Posco proposes to build capacity in three our four phases starting with an initial capacity of 3 million tonnes.