The Telegraph
Since 1st March, 1999
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Posco deal saver pops up Centre offers new ore-export option

New Delhi, April 13: The Prime Minister's Office (PMO) has stepped in to sort out a row over India's largest foreign investment proposal ' a $12-billion mega steel project to be set up by South Korean steel giant Posco and Australian mining major BHP Billiton.

The PMO has ruled that Posco's proposed 12-million tonnes-per-annum plant, to be set up near Paradeep in Orissa, will be allocated some 600 million tonnes of iron ore reserves for captive use by the steel plant, against an initial demand for 960 million tonnes of captive reserves.

However, its demand that mines with reserves of another 400 MT be allocated for exports to its units in Korea was not accepted. Instead, state-run metal trader MMTC will 'be asked to enter into a long-term agreement for export of 400 million tonnes of iron ore over a period of 30 years'.

Posco, one of the world's five largest steel-makers, which was initially unhappy with the Indian stand that it could not be given mines for export to Korea, was offered the MMTC deal as a sweetener. The bargain offer has worked as top Posco executives have told the Indian government that they remain committed to investments in Orissa.

Mines for exports can't be given away as this runs against the central government's policy of not allowing scarce mineral resources to be exploited for exports to foreign shores, while starving domestic firms of the same resources. The government has always ruled that exports should be of value-added products and not of basic raw materials.

However, the offer of a long-term export contract, which would be the second for India ' the first was with Japan ' is in itself considered a major concession to the Koreans.

The Chinese have been long trying to work out a similar deal with India but with no success, partly because India wants China to barter its high-grade coking coal for iron ore.

The compromise was hammered together at a meeting that the cabinet secretary held with secretaries of the steel, mines, finance and planning ministries early this month. The Orissa government was kept in the picture and the decision had its support, say officials. It has now got a seal of approval from the PMO.

The run-up to the deal saw hectic lobbying by South Korean diplomats on the one hand and Indian steel makers like SAIL, Tatas and Essar on the other. These firms were against the export of limited iron ore reserves.

The PMO will hold a final meeting on the issue towards the end of this month when the settlement is expected to be conveyed to the Koreans. A presentation on Posco's project was made to the PMO in a bid to get its stamp of approval a few months back.

The presentation promised a $10-billion investment in steel making facilities, which would include a captive power, a coke oven, an oxygen and calcination plant.

Another $2 billion as investment in support infrastructure like a port and a township was also promised as part of the deal. Posco's plans call for a 'first-module' steel plant of 3-MT capacity, which is to be completed by 2009. Thereafter, 3 MT is to be added every two years till the capacity of 12 MT is reached.

The state government will help out by granting Posco some 6,000 acres of land, of which two-thirds will be used for the plant and other facilities. Around 2,000 acres will be used for the township and mining project.

The government will ask Posco and BHP Billiton to form an Indian company, which will be awarded the captive mining leases for the steel plant. Though officials said no clause is being imposed on the Koreans to open up part of the equity holding to Indian investors, it is likely that the final fineprint may have clauses which will see Posco's Indian arm floating share issues locally.

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