Posco inks $12 bn steel plant deal with Orissa

Country's largest ever FDI for 12 mn tonne per annum project.

The uncertainty on the largest ever foreign direct investment into the country lifted today when the Orissa government signed a Memorandum of Understanding (MoU) with Posco of South Korea for a 12 million-tonnes-per-annum integrated steel plant at Paradeep in Jagatsingpur district at an estimated investment of $12 billion (Rs 52,000 crore).

The capacity makes it not only the biggest project in India but one of the largest in the whole world. The project will be completed in two phases, each phase comprising two modules of 3-million-tonnes-per-annum.

The first module is expected to be completed by June, 2010. Thereafter, 3 million tonnes of capacity will be added every two years. Thus, the plant will reach its full capacity of 12 million tonnes by 2016.

Posco will set up a company in India for this purpose. The same company will also apply for the mining leases as well as carry out all related operations. The registered Office of this Indian Company will be in Bhubaneswar.

The MoU was signed in the presence a high-level Korean delegation led by Posco chairman Ku Taek Lee and Korean ambassador to India, Jung Li Choi. The team also comprised senior executives from Posco's sister organisations like Posac, Posmec, Posrec and Poscon.

On behalf of the state government, Chief Minister Naveen Patnaik, several of his Cabinet colleagues and senior officials, including the Chief Secretary Subas Pani, were present on the occasion.

To meet the raw material requirements of the project, 600 million tonnes of iron ore will be provided only for captive use of the steel plant. This will be adequate to meet the requirements of the plant for 30 years. No ore will be permitted to be used for pure trading within the country or by way of export, said Pani.

He said the company will have to achieve a number of detailed milestones before recommendation is made for a prospecting licence and a mining lease.

However, the company has been allowed to import iron ore of low alumina content and export equivalent quantity of high alumina content ore to its Korean plants, subject to a ceiling of 30 per cent of the ore consumed by their plant at Paradeep in a given year.

Any export of ore by way of swap will be allowed only after an equivalent quantity of ore has been imported for the plant in the first place. There will thus be no net outgo of ore from Orissa without value addition, Pani added.

Once the Posco project goes on stream, the central government is likely to benefit approximately Rs 89,000 crores over a period of 30 years by way of excise and customs duties, service taxes and corporate income tax.

The government of Orissa, on the other hand, is likely to benefit by approximately Rs 22,500 crores over a period of 30 years by way of sales tax/VAT, works contract tax, electricity duty, royalties, Orissa Infrastructure Tax and its share of central taxes.

Speaking on the occasion, Chief Minister Patnaik said the Centre's response to the project had been extremely positive. The development of road and rail linkages from the mining and coal belts of Orissa to the location of the steel plants and Paradeep port has been accorded very high priority and placed on a fast track.

With Posco's investments in Orissa, there is a likelihood of many other medium and large Korean and Indian companies seeking investment opportunities in the ancillary and downstream industries in the steel sector, Patnaik added.

The entire project, including mining, steel plant and port, is likely to generate direct employment to the tune of 13,000 persons and indirect employment for 35,000 persons.

During the construction stage, it is estimated that Posco would need more than 18,000 skilled workers (such as carpenters, welders, brick layers, painters, electricians etc.) daily at the peak of construction activity.

Later, talking to reporters, Posco chairman Ku Tae Lee said the opposition to the project from various quarters will subside when the critics realise its importance once it comes up. He said Posco has enough financial strength to put up the project in scheduled time.