POSCO CASE STUDY

POSCO-India Private Limited is a planned Indian subsidiary of POSCO, an integrated steel producer with headquarters in Korea.

POSCO signed a Memorandum of Understanding (MoU) in June 2005, to incorporate an Indian subsidiary and build a steel plant in Orissa - a state in eastern India. Posco India was incorporated by POSCO in August 2005 with the Registrar of Companies, Orissa, under India's Companies Act 1956. As of July 2011, various delays and controversies have prevented POSCO-India from building the steel plant in Orissa. The June 2005 MoU expired in June 2011. The state government of Orissa expects to replace the expired MoU, and sign a new and revised MoU with POSCO.As of September 2011, the MOU renewal remains a subject of negotiation between POSCO India and the state government of Orissa, because the state has proposed changes and new conditions to the original MOU signed in June 2005. In addition to its attempt to establish a steel plant in Orissa, Posco-India is considering alternate sites for a steel plant. In June 2010, Posco signed a memorandum of understanding with the state of Karnataka. In July 2011, the government of Karnataka announced an approach to land acquisition for Posco project in its state that is different than the approach of the government of Orissa.

The history
POSCO signed a MoU with the democratically elected state government of Orissa in June 2005. The MoU of 2005 stated that the government of Orissa wants to utilize its natural resources and industrialize the State, is seeking new integrated steel plants in view of the rich iron ore and coal deposits in the state. According to the MoU, POSCO agreed to invest in the state of Orissa to establish an integrated plant to manufacture steel, mine iron ore and other ores, as well as the infrastructure necessary for its operation in Orissa. The MoU listed the following understanding between POSCO and the state of Orissa Establish a FINEX/BF plant in phases. The first phase would be completed in two modules, together attracting a total of Rs. 21,800 crores ($5.1 billion) investment. The first phase would produce 6 million tons per year of crude steel, and 5.64 million tons per year of finished steel. The MoU mentioned a second phase, also to be completed in steps of two modules, together attracting a total of Rs. 21,500 crores ($5 billion) investment. The second phase would double the plant's capacity to 12 million tons per year of crude steel, and 11.28 million tons per year of finished steel. The state of Orissa promised to be a partner in development. The state agreed to acquire and provide three land parcels to POSCO: about 25 acres of land in Bhubhaneswar for POSCO India to establish its Indian headquarters; about 4000 acres in the state of Orissa to set up a steel plant, build port infrastructure, establish a storage yard for coking coal, and other associated facilities; and, about 2000 acres of land for POSCO to develop a township, recreational activities and all related social infrastructure - of which approximately 1,500 acres would be identified adjacent/near to the Steel project and remaining 500 acres near the mining location. The state of Orissa agreed to work with the central government of India to arrange necessary supplies and infrastructure for steel production by POSCO India. These supplies included water, electrical power, drainage and sewerage, licenses and permits to obtain coal and iron ore, rail links, and a highway road connection. POSCO India agreed to conduct a rapid Environment Impact Assessment (EIA) and prepare a detailed EIA Report and an Environment Management Plan (EMP) for the Project. The Government of Orissa agreed to provide any assistance requested by the Company during the time the EIA is conducted and the EMP is prepared. The state of Orissa also agreed in the MoU to use its best

efforts to procure the grant of all environmental approvals and forest clearances from the central government of India within the minimum possible time for the project.

The need for steel manufacturing in India

Steel is an essential metal in transport, construction, housing and power generation, particularly for a lowcarbon economic development., In 2009, India became the worlds third largest crude steel producing country in the world, after China and Japan; still, India used 47.8 kilograms of finished steel products per capita, against a world average of 178.9 kilograms, and a European Union average of 240.7 kilograms per capita. The per capita consumption of steel in India is disparate, according to India's Ministry of Steel; urban India has a per capita usage of 77 kilograms versus a per capita usage of 2 kilograms in rural India. According to another 2010 report from the World Steel Association, India's steel demand has been growing in recent years, and is expected to grow by 13.6% in 2011. With 68 MMT of projected steel use in 2011, India will become the third largest steel using country in the world after China and the United States. In July 2011, the International Iron and Steel Institute claimed India produced 6 MMT of steel in the month of June 2011, while China produced 59.9 MMT of crude steel and the world produced 125 MMT. According to a Reuters report, India is one of the largest exporters of iron ore to countries such as China. In the fiscal year ending 2009, India exported 105.86 MMT of iron ore. While India exports high quality iron ore to countries that produce steel, India routinely imports millions of tonnes of finished steel produced from the iron ore every year., The central government of India, and various state governments have adopted a National Steel Vision, citing the need to dedicate Indias mineral resources for its domestic use, action to address consistent shortage in availability of steel for the Indian consumer, prevent inflationary trends in its domestic steel prices, while ensuring Indian steel industry improves its environmental performance, quality and efficiencies. The state governments of Orissa, Jharkhand, Chhattisgarh, West Bengal, Karnataka, Gujarat and other states have signed a total of 222 memorandum of understandings for steel plants, adding a capacity of 276 MMT per year, thereby raising India to become the second largest producer of steel by 2016. Of the 222 MoUs signed, each under different stages of implementation, POSCO-India is one. In early August 2011, an iron ore mining scandal became a media focus in India. In September 2011, Janardhana Reddy - an elected member of Karnataka's legislative assembly - was arrested on charges of corruption and illegal mining of iron ore in his home state of Karnataka. It was alleged that his company organized and exported billions of dollars worth of iron ore to China in recent years, without paying any royalty to the state government exchequer of Karnataka or the central government of India, and these Chinese companies made payment to shell companies controlled by Reddy and registered in Caribbean and north Atlantic tax havens. It was also alleged that corrupt government officials cooperated with Reddy, starting from government officials in charge of regulating mining to government officials in charge of regulating port facilities and shipping. These officials received monthly bribes in exchange for enabling illegal export of illegally mined iron ore to China. Such scandals have led to a demand in India for

consensually driven action plan to eradicate the piracy of India's mineral resources by a illegal-politicalcorrupt government officials-business nexus, removal of incentives for illegal mining, creation of incentives for legal mining and domestic use of iron ore and steel manufacturing

Social and economic benefits from POSCO India

n November 2005, the Ministry of Steel of the Government of India announced its National Steel Policy. This policy is Indias blueprint for the growth of a self-reliant and globally competitive steel sector. The long-term objective of the National Steel Policy, the government of India claims is to ensure that India has a modern steel industry, catering to diversified steel demand, globally competitive, operating with global benchmarks of efficiency and productivity. The current Indian steel plants, according to this report, consume about 50% more energy per tonne of crude steel than international plants, consume and emit 40% more carbon into atmosphere than their global peers. The planned Posco India steel plant, according to this report, brings globalization to India, in terms of quality, high efficiency, pollution prevention and productivity. an economic internal rate of return to India from the POSCO project to be 16.6% sensitivity analysis indicates that even in the worst case scenario sales 10 per cent lower than estimated the economic return to India to be 13.9%. the economic impact of the Posco India steel plant alone, to Indias population, to be Rs. 112 billion ($2.5 billion) assuming a discount rate of 12%. the project additionally will contribute direct and indirect taxes as the iron ore is mined, steel is produced, the metal is converted into products by Indian economy, and these steel products are consumed in various sectors of Indian economy. The report claims the Posco India project will produce an average of Rs. 249 billion per year ($5.44 billion per year) of steel for Indias economy, contribute an average of Rs. 49.9 billion per year ($1.1 billion per year) of domestic sales taxes, capital goods taxes, value added taxes (VAT), iron ore duties, and employee income taxes, annually for 35 years, for the social programs of the central government of India and state government of Orissa. The report admits that its analysis is based on nominal numbers using 2007 basis, that it assumes constant steel prices at $450 per tonne through the year 2040, and ignores the effect of inflation in steel prices or in Indian economy. The carbon steel prices between January and July 2011 ranged between $815 to $910 per tonne. the POSCO India projects FINEX process, the report claims will be superior in preventing AIR POLUTION in India. It will be 10 times less polluting in sulfur oxides (SOx) emissions than currently used BF process in India. The POSCO process, the report claims, will also be 25 times less polluting in nitrogen oxides (NOx) and 5 times less polluting in particulate dust terms than the process currently used by steel plants of India.

Social and environmental controversies with POSCO India

In July 2010, a nineteen member NC Saxena committee visited Orissa and made a very public denouncement about the non-recognition of forest rights by the Government of Orissa and violation of the Forest Rights Act, in the forest areas proposed to be diverted for the POSCO India project. The committee urged the Ministry of Environment and Forests of Government of India to withdraw the clearance given to the State Government for diversion of the forest land. In August 2010, the Ministry of Environment and Forests of the Government of India, in response to the claims of NC Saxena committee, issued a stop work order. The order directed that all land acquisition and transfer for Posco India project, including handing over of the forest and non-forest land be stopped forthwith, and details submitted to the Ministry. The state government of Orissa and Posco India respected the stop work order from the central government of India. A four member Meena Gupta committee was appointed by the Government of India. This committee claims to have conducted intensive enquiry by consulting a large number of documents, field visits and meeting a large number of people (including officials of Orissa government, local affected inhabitants, NGOs and civil society and experts in concerned fields). The committee after examining various social, ecological and environmental issues, returned a split report to the government of India in October 2010: Meena Gupta, the committee chairwoman, acknowledged that Scheduled Tribes enjoy an important Constitutional status in India, and disturbing or displacing them stands on a different footing from displacement of other people. She claims Posco India plant, is planned to be located in a coastal district which is not a Scheduled Area and has virtually no Scheduled Tribe people. The people to be displaced are mostly agricultural and fishermen families (about 700 families). In the report, she claims that while Posco India is to be located on land classified as forest land, this area recorded as forest is mainly sandy waste, with some scrub forest, apart from the casuarina plantations in the area. The other three members of the committee claim that past satellite imagery data suggests current areas under casuarina plantation in the coastal areas were, in past, covered with mangroves. These forests were destroyed either during super cyclones or by illegal cutting. The members also claim that 21 names from voter list of 2006, from the land proposed for Posco India, belong to Scheduled Tribe protected by the Forests Rights Act of 2008.

After the government of Orissa and Posco India announced the MoU and its planned location in 2005, the opposition to the POSCO project was widespread in all the eight villages where it was supposed to be sited. Subsequently, a number of the villagers changed their opinion, according to the Meena Gupta report. The report claims that the reason for change in opinion were: the realization that not all eight villages but only two hamlets would be fully displaced, and a small part of Gadakujang; they also realized that most of the land that would be given was government land, not private land; the fairly liberal compensation package, and the possibility of jobs for their children in the future. As of October 2010, the report claims, in almost every village, except one, the villagers are almost equally divided between supporters of the POSCO project and opponents of the project. One village, Dhinkia, however, has remained steadfastly opposed to the project; so much so that the villagers drove out of the village the few families that were favorably inclined towards the project. The

villagers of Dhinkia also started, the report claims, a blockade of the village to prevent government or POSCO officials from entering the village. The Meena Gupta committee report claims political controversy is part of the scene: the Communist Party of India (CPI) strongly opposes the project, the Communist Party Marxist (CPM) is not opposed to the project if it is shifted a little and if Paradeep port is used instead of a separate captive port. Several other parties, across the spectrum, were not opposed to Posco India, in fact they said they welcomed it, but the present location of Posco, the lack of consultation with other political parties, the issues of water to the plant were cited as some of the reasons for their objection. The Meena Gupta committee report claims the POSCO project is an integrated project encompassing different components like the township, pipeline, road and transportation etc. These, the committee claimed, have been left out of the scope of its initial environment impact analysis. Such partial environment impact analysis was insufficient, the full environmental impact of the entire project is necessary. One of the committee members, Dr. Suresh. sought a clarification from Posco India and the government of Orissa. Both of these parties along regional office of Ministry of Environment - Government of India cooperated and delivered a copy of comprehensive environmental impact analysis for steel plant, captive port and related infrastructure, to the Meena Gupta committee, as completed by July, 2007. Some members of the committee note that this comprehensive environment impact analysis should have been completed in 2005, not in 2007. Three committee members claim that clearances granted in past should had been limited to the scope of the initial environment impact analysis of 2005 for 4 MMT plant. The clearances for the entire 12 MMT plant and port, the committee suggests, should be based on the 2007 comprehensive environment impact analysis.