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In the first week of July, a delegation from the Odisha government, led by Industry Minister Debi Prasad Mishra, travelled to Washington to take part in the annual convention of the Odisha Society of Americas. Soon after the convention, the team met a group of investors and opinion makers to seek investments into the state. The question uppermost in the mind of the prospective investors was the fate of the Posco project in the state - a 12 million tonne per annum integrated steel plant. At $12 billion, it has been amongst the biggest foreign direct investment proposals in the country.
First proposed in 2005, the project has been stuck over various issues: land acquisition, resettlement, allotment of iron ore mines and forest clearances. Recent reports suggest Posco may just scrap it.
The outcome is expected to have a bearing not only on the flow of investment into the state, but also the country, particularly at a juncture when Prime Minister Narendra Modi is striving to bring in foreign investment to make a success of his Make in India programme.
Odisha had attracted investment proposals worth Rs 14 lakh crore over the last ten years. But uncertainty over Posco, along with the pullout by ArcelorMittal, has knocked off more than Rs 1 lakh crore from that basket. Such developments may also have a cascading effect on the plans of other investors who would now feel wary about pursuing their projects in the state, admits a senior officer in the Odisha government.
Though it has not been officially scrapped, Posco's pullout from Odisha is palpable: there is no activity on the ground, project staff strength as well as office space has been reduced to bare minimum and there has been virtually no contact between the company and the state government in the past several months.
The only ray of hope lies in the announcement by the company that it would wait till the auction of iron ore mines is settled before taking a final call on the project.
This means, the company may stick to the project and participate in the auction if it feels the terms and conditions of the auction are worth giving it a try, or else it will skip the auction and quit the project.
Interestingly, according to the amended Mines and Minerals (Development & Regulation) Act, 2015, the auction details will be worked out by the state government. So, can the Odisha government, which claims to be very keen to retain the Posco project, do anything here?
"No", say analysts. The Centre has already framed the rules for the auction following the promulgation of new MMDR Act. The states have to go by those rules. Though there will be weightage for mine seekers with value-addition projects, there is little chance that the state government can tweak the terms and conditions to favour a particular company, especially since the auction will be online.
Alternative plan
To address Posco's concerns over iron ore, Odisha Steel & Mines Minister Prafulla Samal had suggested a tie-up between the Korean steel maker and state-owned Odisha Mining Corporation which owns over two dozen iron ore properties with hardly three or four in operation.
But there is no clarity whether such a tie-up will be for long-term supply to Posco or for improving Odisha Mining Corporation's output, especially since it's proposed that the state-owned unit will own 74 per cent of the equity. No formal proposal has been sent to Posco in this regard yet. Moreover, in such a situation, Posco will be forced to buy iron ore from Odisha Mining Corporation, or its subsidiary, at a cost-plus price, which may not look attractive to the steel maker which was looking for a captive mine to be able to procure iron ore at low prices.
That's why Posco has pinned all its hopes on favourable auction conditions to revive its steel project. Though the company is not averse to participating in the auction, what it fears is cartelisation by Indian steel makers, also in need of captive mines, which may artificially jack up the auction price, making the ownership of mines unviable, particularly when the steel market worldwide is going through a rough patch.
In fact, the current market condition is as much responsible for Posco's decision to keep its Odisha project under suspension as its weariness over delay in land acquisition and problems in getting captive iron ore mine. Last week, while addressing the media after the company's board meeting, Posco Chairman & CEO Kwon Oh Joon emphasised this aspect.
According to sources, in the current market scenario, Posco could expand downstream activities and sell special steel products, designed mostly for automobile sector in the country, instead of making it a base for manufacturing primary metal. So, the company is focusing on building up processing capacities in places like Maharashtra and Gujarat, while it has put the Odisha project on the back burner.
It commissioned a 1.8 million per annum cold rolled mill at Raigad (Maharashtra) in January this year and aims to start two processing plants at Sanand (Gujarat) next year. Joon, in a meeting with Prime Minister Modi when he visited Seoul in May, had expressed his desire to invest in the western part of India while keeping mum on the Odisha project.
To run its processing units, Posco is currently importing steel from its plants in Korea where it faces a glut. A free-trade agreement between India and South Korea, which has brought the import tax obligation to nil or negligible, has aided this effort.
According to the Posco website, the company plans to use its network of processing centres to strengthen its position as the top global automotive steel maker in India.
All this doesn't augur well for the investment landscape of Odisha, which otherwise was on a roll in attracting new investments over past few years, says RP Panda, an industry analyst.
