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Posco's Odisha journey: Travails of a big-ticket project

By Dillip Satapathy
May 20, 2015 12:14 IST
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Ten years after signing an MoU with the state government, South Korean steel major finds its proposed project pushed to the edge

PoscoIt will soon be 10 years since Posco India signed a memorandum of understanding with the Odisha government for setting up a 12-million-tonne steel plant near Paradip.

For the project, billed the single largest foreign direct investment received by India, the decade was marked by an initial hype, a long struggle for land acquisition and an uncertainty over captive iron ore lease.

Today, these difficulties have pushed the project to the edge.

Even as the fate of this $12-billion investment hangs in the balance, Posco’s ordeal brings to light a deeper malaise dogging the implementation of mega projects in Odisha, and elsewhere in the country.

What is responsible for this fiasco?

Is it local people’s stiff opposition to land acquisition? Or is it one-upmanship among political parties over a high-profile project?

Is it inconsistency in the government policy, or the lack of robust support from the administration at the ground level?

A careful look at Posco’s journey in Odisha over the past 10 years might answer these questions.

The MoU

Odisha was on Posco’s global expansion map much before the company signed an MoU for its steel plant on June 22, 2005.

On invitation from then chief minister Biju Patnaik, the steel major had in the early 1990s sent a high-level delegation to the state, to scout for land to set up a mega steel plant.

The area that was identified was a different patch near Paradip.

But, with the steel market soon hitting a cyclical trough, the company did not immediately pursue the venture.

It waited for about a decade to revive its interest in the state, at the time of a metal boom.

The signing of the MoU was preceded by hectic parleys of about a year, during which the draft went through several changes.

Posco initially wanted a one-billion-tonne iron ore linkage in Odisha.

Of this, it intended to export 400 million tonnes to South Korea and use the rest at its proposed steel plant over 30 years.

The state government rejected this demand and the talks fell through.

Later, the company returned to the negotiation table and agreed to settle for allocation of 600 million tonnes of iron ore reserves.

But, on its insistence, a swapping clause was incorporated in the MoU.

This effectively meant the company would export 30 per cent of low-quality ore allotted to it and import an equal amount of high-quality ore to blend and use in blast furnace, for improved productivity.

The ore-swapping clause, along with some other conditions like allowing the company the SEZ (special economic zone) status and captive port facility, later proved a rallying point for critics of the project.

They felt the government was extending ‘undue favour’ to a foreign company.

The protests

The Posco Pratirodh Sangram Samiti, the organisation spearheading an agitation against Posco at the project site for 10 years, was born two months after the signing of the MoU.

Led by Communist Party of India leader Abhay Sahu, PPSS garnered support from other Left-leaning political parties and civil society groups, and held rallies and dharnas at the site -- sometimes using school children -- to oppose acquisition of land for the plant.

Sahu was often accused of operating under the blessings of some top leaders of the ruling Biju Janata Dal and rival steel makers.

Sahu, though, has vehemently denied the charge.

He successfully organised local villagers to erect barricades at various entry points to the project site and for years blocked the company’s and government officials’ access to the area.

Posco had sought 4,004 acres, spread across three panchayats of Dhinkia, Nuagaon and Gadakujang in Jagatsinghpur district, for the project.

Barring Dhinkia, the two other panchayats, comprising roughly 90 per cent of the project-affected people, supported the project.

“But our voice was drowned in the cacophony of protests of vocal anti-Posco activists, who used their civil society contacts to lead campaigns at different forums, to create an impression that the entire population of the area is against the project,” says Tamil Pradhan, a pro-Posco villager.

Political one-upmanship

The race to gain political mileage was in play even on the day of the signing of the MoU. Then industry minister and senior Bharatiya Janata Party leader, Biswabhusan Harichandan, kept away from the MoU-signing ceremony, which was attended, among others, by Chief Minister Naveen Patnaik and then South Korean Ambassador to India, Jung Li Choi.

The BJP was quick to use Harichandan’s absence to score political brownie points over the ruling Biju Janata Dal, especially given that the two parties had ended their coalition in the state.

Besides Harichandan, former state BJP unit president (now Union minister) Juel Oram voiced his reservation over Posco being allowed iron-ore swapping, an SEZ status and getting captive port facilities.

He wrote to the chief minister and expressed his views in this regard.

Though the Congress-led United Progressive Alliance government at the Centre was backing the project, and the Prime Minister’s Office was directly monitoring its progress, the Congress’ state unit, the principal Opposition in the Odisha Assembly, vehemently opposed the project, citing its location in a thickly populated area with agricultural land.

State Congress leaders were often seen visiting the site to lend their moral support to agitations staged by PPSS.

There were murmurs of protest within BJD, too. Former Union steel minister and later a frontline leader of the ruling party, Braja Kishore Tripathy, strongly opposed the project and wrote several letters to the chief minister.

But what cost Posco dear was the hostility of Pyari Mohan Mohapatra, then number-two in the ruling party.

Mohapatra apparently was antagonised by the fact that Chief Secretary Subas Pani, with whom his relations had soured, was driving the project without keeping him in the loop.

While the promoters of other major projects in the state would seek Mohapatra’s blessings before filing their proposals with the government, Posco officials did not visit him even after a year of signing of the MoU.

As Mohapatra, who was close to the chief minister, turned against the project, officials at the ground level saw this as a sign that work need not be expedited.

So, despite active support from some of the state’s top bureaucrats, including Pani, his successor and then steel and mines secretary, Bhaskar Chatterjee, and IPICOL chairman and nodal officer for the project, Priyabrata Patnaik, work on the project could not progress due to lethargy of other officials.

This was believed to have been in the absence of clear instructions from Mohapatra or the chief minister.

Land acquisition for the Posco plant was taken up in real earnest only in 2012 -- after Mohapatra’s ouster from BJD following a failed coup to dethrone Patnaik -- and was completed in a year.

The chief minister, on his part, has rarely been seen going overboard in supporting the project, though he maintains the government is keen to see Posco setting up the project in Odisha.

He might have had his reasons to be restrained in his approach.

First, he has to share with the Centre the political exploits from the project.

The Centre is equally keen on this because of the FDI it brings.

Second, Patnaik is often seen as a leader who would not keep a clearly pro-industry stance, lest he should be tagged anti-people.

It could be because of this that he has never visited the Posco site in these 10 years.

Administrative lethargy

The lack of hand-holding from the government after signing of MoUs is a common complaint from many promoters pursuing projects in the state.

In the case of Posco, not only was the district administration laid back in pushing land acquisition for nearly seven years, it could not even reconvene the meeting of the Rehabilitation and Peripheral Development and Advisory Committee after July, 2010, to finalise the compensation package for project-affected persons.

An apparent inaction on the part of the administration is exacerbated in the fact that Posco’s MoU with the state government expired in June 2010 but it has neither renewed nor was a fresh agreement (as proposed) signed to date.

A Posco India official says: “In 2011, a draft for a tripartite pact among Posco India, its South Korean parent and the state government was filed to replace the MoU; the government is yet to take action on it.”

In fact, the absence of a valid contract between the state government and Posco to assure the latter of raw material linkages has proved a bane for the project.

The new Mines and Minerals Development and Regulation Amendment Act says if an entity needing captive mines does not have a valid letter of intent from the state government before promulgation of the Act, it would have to go through the auction route, and could not be given any preferential treatment.

Changes in project parameters

Facing persistent opposition from various quarters on certain sticking issues related to the project, Posco has brought about several changes in the project’s scope over the past 10 years.

It agreed to drop the iron-ore swapping clause in the MoU after deciding to adopt its patented Finex technology, which can use low-grade iron ore and common coal for manufacturing steel.

Similarly, after stiff resistance from the local people to land acquisition, the company desisted from private land acquisition and lowered its demand for land from 4,004 acres in one go to 2,700 acres, for starting work on the first phase, comprising eight million tonnes of steel capacity, through suitable changes in the project plan.

Inconsistency in policies

On environmental clearance, though Posco had in 2007 received necessary clearances for its steel plant and captive port, the permission was subsequently reviewed and withheld over petitions filed by green activists.

The objections mainly pertained to Posco getting environmental clearance for four million tonnes of capacity while it intended to set up a 12-million-tonne steel plant. However, after a divided verdict of a three-member panel sent to the site to study the possible environment impact of the project, Jairam Ramesh, then the Union environment & forests minister, gave a conditional clearance in 2011.

This was again suspended by the National Green Tribunal when some activists contested the issue.

However, the tribunal lifted the restrictions after an assurance from the company that the conditions imposed by the ministry would be fulfilled.

Mining row

Posco’s attempt to get a captive mining lease for 600 million tonnes of iron ore reserves in Sundergarh district’s Khandadhar received its first blow when the Odisha high court scrapped the state government’s recommendation for grant of a prospecting licence to the company in 2010.

Though the Supreme Court later upheld the Odisha government’s decision, it left the issue to be decided by the Union mines ministry.

The Centre sought various clarifications on the state’s recommendation, which the state was not able to furnish in time.

Before the state could satisfy all of the Centre’s queries on mining licence recommendations, the MMDR Amendment Ordinance, in January this year, made it mandatory for all entities seeking mining leases to go through the auction route.

Posco does not appear keen to go for the auction route, for fear of losing its cost advantage.

However, the company has said it would not set up the steel project if it does not have a captive mining licence.

This has virtually come as a death knell for the project.



Jun 22: Posco signs MoU with Odisha govt to set up a 12 million tonne greenfield steel plant near Paradip at $12 billion
Aug: Posco Pratirodh Sangram Samiti (PPSS) formed


Aug 8: SC upholds “in principle” clearance for use of forestland for the project


Dec 29: The environment ministry grants final clearance for diversion of forest land


Jul 14: Odisha HC cancels grant of prospecting licence to Posco for Khadadhar iron ore mines
Oct 29: Odisha govt moves the Supreme Court against the HC order


Jan 31: MoEF gives conditional environment clearance to the Posco project


Mar 30: NGT suspends the environment clearance granted to Posco


May: Odisha announces acquisition of 2,700 acres to enable the company start work
May 10: SC strikes down the HC order


Nov: Odisha govt sends proposal for notified area of the proposed mining lease after the Centre asks it to clearly demarcate the notified and non-notified areas in the lease


Jan 12: Centre promulgates MMDR Amendment Ordinance, 2015, which prescribes allotment of mining lease on auction basis

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Dillip Satapathy in Bhubaneswar
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