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POSCO’s learning curve in india

It is not often that a government decision of a country to help out its own industry locally is celebrated in another country. Yet, it seems to be happening to an extent at POSCO (formerly Pohang Iron & Steel Company), the South Korean steel giant, ever since the news of the India’s union cabinet decision to lift all coal mining hurdles, including land acquisition, environment and forest clearances, broke internationally on the last day of May. Although the decision by the powerful Group of Ministers (GoM) of the government of India is intended to help only the prospective new generation private captive coal miners to be fast on their feet to raise coal from their allocated blocks to feed their respective thermal power plants, it seems to bear a big significance to POSCO looking forward to speedily pursuing with its 600-million-tonne iron ore mining project in Odisha which is linked with the Korean company’s ambitious steel project in India’s mineral rich eastern state.

The POSCO’s iron ore and steel project, for which the company had signed a memorandum of understanding (MoU) with the Odisha government way back in 2005, has been facing one hurdle after another from the union government, police and state administration and local judiciary as well as Maoists and tribal protesters in the iron ore hills. A vast area of land in the hilly region has been earmarked for POSCO on long-term lease to mine iron ore for its proposed steel plant. But, the company has made little progress to acquire and physically possess the land in view of these hurdles. Maoist protesters have challenged the land acquisition as illegal and moved the court against it. POSCO employees were terrorised with abduction and death. Of some 4,000 acres of land to be acquired at the mining site in the Khanddhar hill region, only 50 per cent are said to be in the possession of the company. It is hoped that the latest GoM decision will bear a positive impact on the POSCO project which is already running several years behind schedule.

Prime Minister Manmohan Singh, who was in Seoul in the last week of March this year, on a four-day visit to attend the Nuclear Security Summit and hold bi-lateral talks with South Korean president Lee Myung-Bak, other top officials in his government and meet industry representatives, had promised action to help solve some of POSCO’s problems concerning land acquisition and government clearances. ‘We will take pro-active steps to address investor grievances and improve business climate in the country. Many states of our Union are actively encouraging foreign investments and we will support these efforts. I urge Korean industry to have faith in India,’ Singh had reportedly said then. The POSCO management is waiting to see the Indian prime minister’s promise is fulfilled and their USD 12-billion integrated steel project finally takes off. The project is expected to directly employ some 13,000 people and some 35,000 others outside.

POSCO’s date with India has so far been a gloomy story about how bureaucratic and political hurdles frustrate even the best of initiatives and intentions to launch large Industrial projects in India. The foreign direct investment involved in the Odisha project is the largest single by any company. The project if allowed to go through will make it the world’s largest single green-field steel plant. The progress made by the Korean promoters so far is appallingly slow. Put to a similar situation, any western firm of POSCO’s profile would have walked out after the validity of the MoU had expired and some of the initially agreed conditions such as iron ore export were withdrawn. Surprisingly, the Korean firm, the world’s fifth largest steelmaker having an annual output of over 35 million tonnes of crude steel and with presence in the United States and other countries, held cool and refused to give up on India. So far, it has restrained itself from making any strong anti-India statement.

The Korean steelmaker seems to have developed an unusually sharp and practical understanding of Indian business environment and political system. The company is already exploring several other options to do business in India. POSCO has roped in public sector Steel Authority of India Limited (SAIL) to set up a joint venture steel plant at the latter’s surplus land at Bokaro in the state of Jharkhand. The proposed three-million-tonne capacity steel company with SAIL will be set up on a 51-49 percent equity sharing basis using FINEX technology invented by POSCO with support from the Korean government. The unique non-coking coal using technology carries the technique of consuming iron ore fines instead of lump ore. Iron ore fines are abundantly available in India. So is the non-coking coal.

The Korean steel conglomerate seems to have learnt a lot from its Odisha experience to strike a balance between the two political environments and plan its investment strategy tailor made for India. Its business tenacity may serve as an example to even Indian industrial houses, which are often short of patience and talk about making investment outside the country.
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