South Korea's Posco scraps India steel project after delays

Sameer Hashmi explains Posco's India pull-out

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South Korean firm Posco says it has scrapped a proposed steel project in the Indian state of Karnataka after delays and local opposition.

The company said it had dropped the $5.3bn (£3.5bn) project in the state's Gadag area after protests against the acquisition of land for the plant.

The decision is a blow to India's efforts to attract foreign investment.

But Posco is proceeding with a planned $12bn plant in eastern Orissa state, which has faced similar protests.

The firm blamed its decision to pull out of Karnataka on "the significant delay in the project and inability to get land in Gadag".

Analysis

Across India, big investments have faced similar issues - regulatory hurdles, difficulties in getting land and environmental clearances and protests by locals.

This has stalled the multi-million dollar plans of several global companies.

Indian firms have also faced similar troubles - Tata Motors had to shift their operations out of Singur in West Bengal after violent protests from farmers and politicians.

The Indian government is working on new legislation to clearly define its policy on land acquisition. In the draft bill, the consent of 80% of the owners of the land in question is required for acquiring land for private industry. But the new law is expected to increase the cost for companies.

"Progress on land acquisition was held back due to agitations by some farmers and religious leaders," the firm said in a statement, which made clear that land acquisition talks had come to a halt as far back as July 2011.

Posco and Karnataka had signed the agreement three years ago and the plant, when completed, was to produce 6 million metric tons of steel a year with iron ore to be mined locally.

Earlier this month, the state government returned $10m (£6.6m) to Posco that the firm had deposited as an initial payment for acquiring land for the plant.

Posco, however, said it may consider returning to Karnataka "in future, if we get an attractive business proposal from the state".

The much larger Posco project in Orissa has also faced stiff opposition from local people campaigning to save farmland and woodland.

But the land acquisition for the project has been completed, and the plans to build the plant are on track.

The Orissa plant, which will be based in the port city of Paradip, was conceived in 2005 and is India's single biggest foreign investment.

It is expected to create nearly 50,000 jobs.

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