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Why Posco is in trouble in India

Last updated on: May 24, 2010 08:57 IST

Image: Protestors of the Posco project in Orissa.
Photographs: Reuters. Rediff Business Desk and Agencies

Posco, the world's fourth largest steel maker, was in January ranked among a global list of 100 companies that will last for the next 100 years.

Interestingly, governance, transparency and capacity to handle environment-related issues are taken into account in selecting these 100 companies

"Posco will not only last the next 100 years, but will go beyond, and India will play a big part in our story of survival and growth", CK Kwon, managing director of Posco-India, said.

However, this optimism belies the startling facts delaying the Rs 52,000 crore ($12 billion) Posco project.

Billed as India's biggest foreign direct investment, the Posco has been delayed by more than five years due to protests by farmers who are agitating against giving up their fertile agricultural land. Many have faced the wrath of the police, got injured and killed in protests over the years.

Local activists say villagers cannot be allowed to be refugees in their own land.

about the villagers' fight against a mighty multinational company...

Why Posco is in trouble in India

Image: A farmer works in a paddy field in Dhinkia village.
Photographs: Reuters.
The fight for land

The controversy over land acquisition has become a major issue in India, stalling several projects.

Abhay Sahoo, president of the Sangram Samiti, said, "Posco can never establish the project as people are determined to make any sacrifice to save their land from being taken over by the company."

Activists say the project is in clear violation of environmental norms at the cost of the livelihood of thousands of farmers.

Demanding a 'white paper' on the Rs 52,000 crore (Rs 520 billion) steel project, Communist Party of India general secretary A B Bardhan said that although it is billed as India's biggest FDI capable of creating jobs, government must publish details about Posco's cost in terms of loss of land, minerals, water and its adverse impact on poor people.

Meanwhile, CPI leader D Raja, in a letter to Prime Minister Manmohan Singh, said, "Of the 4,000 acres of land, 3,000 acres to be given for Posco's steel plant is classified as forest land. Under the Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, many of the people of the area are eligible for right over this land, especially the lands they are cultivating, as they have been living in the area for more than 75 years."

Hundreds of families had been using the forest land for their livelihood. Villagers are opposing government plans to lease 4,000 acres of fertile land to Posco for its three iron mining projects in Kandhahar, Kujanga and Paradip.

. . .

Why Posco is in trouble in India

Image: Posco's Paradip office.
Photographs: Courtesy, Posco.
Blow for Posco's port proposal

After facing land acquisition problems, Posco's port proposal is mired in controversy.

The Rs 5,000-crore (Rs 50 billion) port project at Jatadhari near the Bay of Bengal is in trouble as its jurisdiction clashes with that of Paradip Port, a government facility.

Rejecting Orissa government's formula of excluding 300 acres of private land from the proposed Posco site area near Paradip, the Communist Party of India demanded that the entire site be shifted elsewhere and an official statement be made about its overall impact on the state.

Posco insists that the company has always dealt with basic issues with care.  It had stated that the company would bring value addition to the mineral wealth of Orissa, which will lead to significant growth and investment in the country.

The project is a foundation to industrialisation and growth in the state and will create enormous opportunities for developing ancillary and down-stream industries. It will boost futuristic growth and innovations, the company says.

"Wherever we have worked we have done so in partnership with our shareholders, employees and local community. We have also worked to grow the community with educational institutions and scholarships and to grow the natural environment around us with environment-friendly technology. The Finex technology that we will install at our Jagatsinghpur plant is designed to be environment-friendly," Kwon says.

However, matters have now begun to take an ugly turn...

. . .

Why Posco is in trouble in India

Image: Orissa CM Naveen Patnaik with Posco officials.
Photographs: Courtesy, Posco.
The row over forest dwellers

The Orissa government had informed the central government that there were no forest dwellers in the designated project area. However, with the agitation intensifying in Jagatsinghpur, doubts have been raised over the claims of the Orissa government.

The Union Ministry of Environment and Forests on May 18 issued a letter on steel plant and captive port of Posco India, which could stop the Orissa government from transferring 1,253 hectares of forest land to the company for non-compliance of conditions laid down in the final approval of land diversion given on December 29, 2009.

It turns out that state government had lied that no compensation and rehabilitation of the tribals and other forest dwellers was required as none exist on the land to be given for the project.

. . .

Why Posco is in trouble in India

Image: Posco official hands over books to children.
Photographs: Courtesy, Posco.
Orissa govt in trouble

The state government said no tribal people live in the proposed Posco area. There are no people cultivating or residing in the forest land and that no other traditional forest dwellers are in possession or cultivating land since last three generations (75 years).

As the whole proceedings of settlement of the rights under the 2006 Forest Right Act were written in Oriya, the Central government sought an English translation on April 15.

This state government facing the wrath of the local people and opposition parties has not yet responded.

Meanwhile, the conditional approval from the central government had stressed that the project would get clearance only if all the 15 conditions, which include the consent of the tribal people and other traditional forest dwellers as per the provisions of the Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006 are met.

. . .

Why Posco is in trouble in India

Image: CPI general secretary A B Bardhan.

Agitation gets political backing
Six opposition parties joining hands with the villagers of three gram panchayats in Orissa's Jagatsinghpur district
On May 15, at Balitutha, the main entry point to the three gram panchayats of Dhinkia, Nuagaon and Gadakujang hundreds of policemen resorted to lathicharge and firing on villagers staging a protest.

"If the state government further uses force against the villagers who have been peacefully opposing the project for the past five years, the agitation will only grow stronger," Communist Party of India general secretary A.B. Bardhan.

The Bharatiya Janata Party has demanded a CBI probe into the police action against tribals at the Kalinganagar industrial hub and Posco's proposed plant site near Paradip.

. . .

Why Posco is in trouble in India

Image: Posco plant.
Photographs: Courtesy, Posco.
The timeline

Posco signed a memorandum of understanding in June 2005 for the plant, which was to be built in three phases by 2016, with production scheduled to begin by the end of 2011 at the completion of the first phase.

In June 2007, the Orissa government sought permission to offer forest land for the project. The ministry granted 'in principle' permission on September 19, 2008, but with 13 conditions to be fulfilled.

On December 3, 2009, the state government submitted a compliance report on these conditions and secured a final approval from the ministry for diversion on December 29, 2009.

Besides taking care of tribals, the conditions include afforestation by the company, no labour camps in the forest area, free supply of coal or fuel to labourers working on the project side to prevent wood cutting from adjacent forests, no damage to flora and fauna in the area etc.

The Posco Pratirodh Sangram Samiti in January 5, 2010 wrote to the ministry against illegal action at the site.

The environment ministry then clarified that clearance is subject to the condition that the "informed consent of the tribal people" is needed.

. . .

Why Posco is in trouble in India

Image: Finex plant, Orissa.
Photographs: Courtesy, Posco.
Orissa, a hotspot for miners

Orissa is a mineral rich state that contributes 98.4 per cent of chromite, 56 per cent of bauxite, 28.7 per cent graphite, 28.5 per cent manganese, 34 per cent iron, 24.8 per cent coal and 91 per cent nickel to the total mineral reserves of India.

The Indian project is crucial for Posco as it will give the company access to cheap raw materials and help the company increase its output.

Posco operates the world's two biggest steel plants at Gwangyang and Pohang in South Korea, along with many steel processing facilities globally.

It is now in the process of setting up the world's third largest steel plant at Jagatsinghpur in Orissa which is estimated to produce 12 million tones of steel per annum.

. . .

Why Posco is in trouble in India

Image: Posco headquarters in Orissa.
Photographs: Courtesy, Posco.
Uphill task for Posco

Warren Buffett, chairman of Berkshire Hathaway, who has invested in Posco, calls it a 'wonderful' company. But will the company be able to do wonders in India?

Experts feel it is an uphill task for Posco with resistance growing against the company's operations from local activists, villagers and major political parties.

Meanwhile, Posco is likely to sign a memorandum of understanding (MoU) with state-run SAIL in the next three months to jointly set up a 5 MT integrated steel project in Jharkhand at an estimated cost of about Rs 25,000 crore (Rs 250 billion).

The move comes despite the long delay in the setting up of Posco's 12 MT steel plant in Orissa.