KOLKATA (miningweekly.com) - South Korean steel major Posco’s plans for securing iron-ore resources for its $12-billion Indian investments have been thrown a lifeline through the intervention of Indian Prime Minister Narendra Modi.
The project, which has been hanging fire for over a decade, was given a nudge following the Prime Minister’s two-day Seoul summit with Korean President Park Geun-hye, followed by a meeting with Posco CEO Kwon Oh Joon earlier this week.
Senior officials in the Steel Ministry said that the Indian Prime Minister held a series of talks on bilateral economic issues with Korean political and business leaders, but Posco investments, almost on the verge of being scrapped, did not specifically figure during this visit.
This initially was considered a disappointment, as Posco's plans to set up a 12-million-tonne-a-year steel plant in the eastern Indian port town of Paradip, in Odisha, linked to the Khandadhar iron-ore reserves, represented the single largest foreign direct investment in the country, the official said.
However, soon after his return, Modi was reported to have pushed for several initiatives aimed at getting the stalled project off the ground.
On the big picture of promoting India-Korea economic cooperation, the Prime Minister had already announced project “Korea Plus”, an institutional mechanism within the Indian government to specifically address all issues faced by Korean companies in investing in India and, clearly, Posco would be the top priority for such an institution, the official said.
Specifically on Posco’s investment, Modi reportedly instructed the formation of a joint team comprising officials of the Steel and Mines Ministries to address issues of iron-ore sourcing for the steel company. A joint meeting of top brass, Ministers of Steel and Mines and Odisha Chief Minister Naveen Patnaik, would also be convened within the next few weeks to find a solution to the Posco logjam.
Under the newly promulgated Mines, Minerals Development and Regulation Act 2015, the Steel Ministry turned down the allocation of the Khandadhar iron-ore reserves on preferential basis to Posco. The Ministry clarified, without specifically mentioning the Posco case, that as the legislation prescribed the auction route for the allocation of mineral resources, all steel companies would need to secure resources through competitive bids.
Posco, as per a memorandum of understanding (MoU) signed with the provincial government of Odisha in 2005, had committed to investing in the steel plant on condition of preferential allotment of iron-ore linkage by the provincial government with the necessary approval of the federal government.
But with the auction route being made mandatory, Posco’s investments were in jeopardy and the project was on verge of being scrapped, although no official confirmation had been made by the Korean company to date.
While the contours of a possible solution in offering raw material linkage to Posco were still in a fluid state, officials said that a number of options were under consideration in response to the Prime Minister's push.
One of the options considered was getting the Steel Ministry to reverse its order turning down the Odisha government’s application seeking a prospecting licence for Posco. However, the legality of such a move was uncertain in view of legislation that decreed auction for allocating all mineral resources mandatory.
A second option was establishing a joint venture (JV) between the Odisha government-owned and -managed miner Orissa Mining Corporation (OMC) and a federal government mining company such as NMDC. Such an entity could participate in auction of mineral resources specifically for government companies and the JV could have an exclusive sales agreement for supply of iron-ore to the Posco steel plant.
Another option under consideration was the Prime Minister using his executive powers to make a one-time exemption of the auction route and directing the Odisha government to offer the Khandadhar iron-ore reserves to the steel major.
Officials said that apart from these, if Posco was forced to participate in auction directly, it would be almost tantamount to slamming the door on the steel major, as the latter had unofficially made it clear that it would stick to preferential allotment or nothing.