The long-delayed clearance for the country’s biggest foreign direct investment project will give a boost to other infrastructure projects

Posco, the world's third largest steelmaker, was today given a conditional clearance by the environment ministry for a greenfield plant in Orissa that has been delayed due to criticism that it would disrupt the livelihood of thousands of local people. This project is expected to change the steel business in the country in the near term.

The South Korean steel maker proposes to invest Rs52,000 crore for a plant with 12 million tonnes per annum capacity, in Orissa's Jagatsinghpur district. This makes it the largest foreign investment in the country so far. The entire project requires about 1,621 hectares of land, of which about 1,253 hectares is forest land.

This decision by the Ministry of Environment will raise hopes of some other steel makers who have also been eager to tap the growing Indian market. Like billionaire LN Mittal who tied up with his old friend Rajinder Miglani, chairman of Uttam Galva, to enter the Indian market. Japanese steel companies JFE and Nippon Steel also prefer alliances with Indian steel companies.

Lobbying by other ministers may be one of the major reasons that forced the environment ministry to clear the project. Several projects, particularly mines and steel plants, have been under the scanner of the environment ministry, with the minister Jairam Ramesh echoing ecological concerns and protests by local people. The ministry has banned mining at hundreds of coal blocks, and much foreign direct investment has also been delayed due to opposition to these projects.

But Mr Ramesh has had to face criticism from his colleagues. Coal minister Sriprakash Jaiswal, who was promoted to the cabinet this month, commerce and industry minister Anand Sharma and agriculture minister Sharad Pawar, who was keen on the Lavasa project that has also been delayed, have openly opposed the decisions by the ministry. Prime minister Dr Manmohan Singh too has been concerned that these delays could be a setback for foreign investments. The decision on Posco was supposed to be an indicator of the country's position on the approach to foreign participation in the country's infrastructure growth.

It is also said that the government's ambitious plans to ramp up the country's steel production to 120 million tonnes per annum (mtpa) by 2012 pushed the environment ministry to clear the project. As of now, the country's steel production is at around 60 mtpa and is expected to go up to 120mtpa within the next couple of years. Existing brownfield expansion programmes by steel companies are not enough to achieve the target.

According to the World Steel Association, the current production of the country is around 67mtpa, just 6.4% growth over 2009, while China has increased its production by 9.3% to 627 mtpa. Therefore, more such greenfield projects will be required. India is currently the 5th largest steel producer.
 
Posco's foray into India will stiffen the competition, as its proposed capacity is much higher than that of most Indian steelmakers, barring SAIL. The company has planned a 12mtpa in three phases.

With global experience and advanced technologies at its command, Posco will set up its plant at a quicker pace. This will put pressure on smaller players and force some of them to consolidate with its bigger peers.
 
Although Posco has received the environmental clearance, there will be other hurdles in its path like acquiring mines, rehabilitation of locals, allocation of raw material linkages. Posco has said on its website that the government of Orissa has assured a mining lease for 600 million tonnes reserves, which would be adequate for the 12mtpa plant in Paradip for about 30 years. But Posco will be conscious now that there is a lot of difference between signing the papers for such projects and their execution.