 "What prompted Posco to exit mega steel project in Karnataka?")
Has the progress on Odisha project influenced the company’s decision to close shop in Karnataka?
The official reason cited for Posco’s withdrawal from Karnataka is delay in land acquisition. But this does not sound convincing given the fact that Posco has hung onto Odisha despite all the hurdles in last eight years while it got fed up with a delay of three years in Karnataka.
More than land acquisition problems, sources say, issues like market conditions, complexity of handling multiple projects simultaneously, political developments and raw material security, were crucial factors in deciding the fate of the projects in two different states.
When Posco signed MoU with the Karnataka government in June 2010 for setting up a six million tonne project in that state, it was speculated that the company, facing agitations over land acquisition in Odisha, was looking for an alternate site to shift out of the state.
Some also saw it as a ploy to put pressure on the Odisha government to hurry up the land acquisition process. Now, with the Odisha government acquiring the requisite land for Posco’s first phase work, the necessity of an alternate location no longer exist.
Says Posco spokesperson Kim Ji-young, "We will proceed with a steel mill in Odisha, which is making progress. The latest move (closing of Karnataka project) will make us more focused on the project".
A steel industry expert pointed out, it was not possible for the company to implement the two projects in two Indian states simultaneously involving a combined expenditure of about Rs 1,00,000 crore.
Besides the cost, there were issues like project management, staffing and logistics to handle. Hence, Posco wants to focus all its efforts on Odisha project, which has made progress in land acquisition, raw material linkage and environment clearances.
The sluggish market conditions also had its impact on the decision. When the company proposed to build the steel plants, first in Odisha and then in Karnataka, a few years back, the steel demand in the country was projected to grow at 8 to 10%.
But India has clocked steel demand growth of 3.3% in 2012-13 and there is no sign of it jumping quickly. In this backdrop, Posco does not want to pile up capacities in the country, said a company official.
Unlike Odisha, where there has been political stability under the chief ministership of Naveen Patnaik, for last 13 years, there were frequent changes in the highest office of state administration in Karnataka since Posco signed its MoU with the state government in 2010.
The company had to deal with three chief ministers under the erstwhile BJP rule and now, a new one (Siddaramaiah) after the Congress wrested power in the state in the recent elections. This posed a major challenge to the company.
“We have put a hold on our efforts to implement a ISP (integrated steel project) in Karnataka primarily because of the political uncertainty in the state”, Y W Yoon, CMD, Posco India told newsmen a couple of months back.
The company had carefully chosen the site of its project at Halligudi in Gadag district of Karnataka, adjacent to Bellary mines, with the intention to access raw material from this iron ore rich belt. But its hopes of raw material linkage was dashed with the Supreme Court imposing mining ban, following exposures on illegal operations, in the state.
In contrast, the apex court recently facilitated grant of prospecting licence to Posco for Khandadhar mines in Odisha by striking down a High Court order which prohibited the state government from allotting the mine to the South Korean firm.
Again the composition of the site area for the company’s Odisha project- all the 2,700 acres required for the project’s first phase were government land which the administration had to acquire by paying compensation to the squatters- worked in its favour in the state.
But the presence of large tracts of private land and a religious structure in the Posco’s proposed site in Karnataka and a protracted agitation by the local farmers led by the head of the concerned religious institution virtually sealed the fate of the project in that state.