The Hindu Business Line : Posco, Orissa Govt talks deadlocked over mining rights

The Korean firm has sought to ship 400 million tonnes of iron ore over a period of 30 years out of a captive iron ore mine capable of supplying 600 million tonnes of ore.

New Delhi , April 25

THE $10-billion steel plant project in Orissa by the world's fifth largest steel-maker from South Korea's Posco Ltd, has apparently run into rough weather following the Korean firm's insistence on concessions in mining iron ore and buying back the same.

A spokesman of the Korean steel giant said in Seoul only a few days ago, "We are still in talks with the Orissa Government and remain committed to the project".

Subsequently reports surfaced that a crucial signing of the memorandum of understanding (MoU) between the project firm and the State Government is held up presumably on the issue of iron ore mining.

The massive steel plant project, part of Posco's ongoing move to expand production globally to take advantage of the hardening of steel prices, includes building a 10-million-tonne steel plant, a 30-million-tonne iron ore mine, a hot strip mill for making hot rolled coil and a sea port in Orissa. Once commissioned, the plant will help one of India's backward States, to boast of a manufacturing hub for efficient steel production and associated infrastructure development.

Foreign direct investment (FDI) in mining is allowed 100 per cent in India. Foreign investors are allowed to establish highly capital-intensive plants for maximisation of value addition, upgradation of technology to global levels even as they are not permitted to do only mining and mineral separation activities.

In this framework, the proposal of Posco to set up a steel plant, making use of the abundant availability of raw material within the State and availing of its own technology in the production of steel in a cost-effective manner, make sense.

But the catch is that the Korean firm sought to ship 400 million tonnes of iron ore over a period of 30 years out of a captive iron ore mine capable of supplying 600 million tonnes of ore.

The CPI (M), supporting the ruling United Progressive Alliance (UPA) Government, naturally resented the Korean firm's intention to lock in uninterrupted and long-term commitment of supply of raw material like iron ore to its parent plant through the Orissa project. When domestic steel majors such as the SAIL and Tata Steel and a few private players have drawn up ambitious steel expansion plan, iron ore availability for their use need to be "reserved", the CPI (M) said.

However, industry sources told Business Line that the Korean firm has sought to "balance" export with "import of less alumina content". Posco's contention is that if it is allowed to import certain quantity of low-alumina grade iron ore and process the same with "high grade" ore in Indian mines and then export the same quantity of the ore it imported, the country would benefit out of such exports which would also supplement the parent plant at least to part-source its raw material from India.

As per the Indian Bureau of Mines estimates, the country's iron ore reserves stand at 17,712.4 million tonnes, which include reserves of Hematite iron ore at 12,317.2 million tonnes and Magnetite iron ore at 5,395.2 million tonnes.

The total production of iron ore in fiscal 2003-04 stood at about 120 million tonnes and after meeting the indigenous consumption of about 52 million tonnes, the exports of iron ore were about 62.6 million tonnes. Provisional estimates reveal that exports of iron ore in fiscal 2004-05 is likely to touch a level of 78 million tonnes to yield Rs 14,233 crore.

Even metal traders such as MMTC, which recently firmed up iron ore export to Japan and South Korea, urged the Government to ensure the continuity of the long-term agreement with the Japanese steel mills, as the five-year contract would be over by March 31, 2006.

Moreover, the major iron ore suppliers in Australia and Brazil have been undertaking new capacity expansion in order to ease the availability of the ore. Market sources surmise that the recent spurt in iron ore prices is likely to subside and by 2006 there would be buyers market as had been in the past.

Even as the Commerce Ministry is to unveil a long-term iron ore export policy, the domestic steel industry has pleaded for stopping exports of iron ore with a high ferrous content in the light of escalating demand for the ore by steel mills and reserves being limited.

The `reservation' for domestic consumption chorus has been joined by the CPI (M), which intends to take the issue with the Prime Minister. The question is whether the foreign investor seeking to put his money into steel making could demand mining concession to ship back raw material to his parent plant after making the finished product within the country?

If not, why restrict high grade iron export and route it through MMTC or other licences all along these years, instead of clamping a blanket ban lest domestic raw material sources should not be parted away for a song?, so argue iron ore exporters.

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