POSCO is finally reading the conditions right

In its seven-year saga in India, South Korean giant POSCO for the first time is showing some flexibility. While on one hand, the steel major is in talks with Indian peers like Essar Steel to partner its delayed project in Orissa, the company has also shown reason by willing to set up a smaller plant to overcome the land acquisition problem.

It signed the memorandum of understanding (MoU) in 2005 with the Naveen Patnaik-led Orissa governmentto set up a 12 million ton per year steel plant in the state. Since then POSCO  has been hampered by a mix of its own inability to read local conditions; and frequent flip-flops by establishments at the state and the centre on issues such as environment, iron ore export and land acquisition. The MoU too has expired now.

In a feature that I had written last year after visiting the POSCO site and talking to scores of people connected to the project, it was clear that neither of the sides was blameless. Here is the link to the story - http://forbesindia.com/article/big-bet/can-posco-cross-the-india-barrier/27502/1.

With an army legacy that had shaped a top-down approach in management, POSCO was unprepared for setting up the steel plant in India. Orissa was not Pohang or Gwangyang, where POSCO has its plants in its home country. There were hardly any protests by 70,000 people who were displaced in the two cities. To quote from the story, "In Orissa, only about 2,000 people were to be displaced and Posco expected the first phase with annual capacity of 4 million tonnes to be up and running by 2011. Unfortunately, it misread the ground realities and failed to rope in local partners."

POSCO is now making amends. It's latest Chairman and Managing Director of the Indian unit, Yong Won Yoon (the fourth from the parent company to be deputed to India in the last seven years) has sent feelers to major Indian steel players to help him set up the project in Orissa. Someone like Essar Steel or Tata Steel, who already have operations in the state, would be well suited. The have already built relationships with local establishments and have personnel who are experienced in dealing with the ground realities.

Two years ago in our flagship Forbes India Rich List issue, (http://forbesindia.com/article/india-rich-list-10/lakshmi-mittal-cast-in-a-new-mould/18062/1) I had mentioned how Lakshmi Mittal was tweaking his India plans to expedite work on projects that his company ArecelorMittal planned in the country. Instead of insisting on mega plants that needed huge tracts of land, the Indian billionaire now was open to setting up smaller units on fewer acres. Now POSCO, albeit a little late, is showing the same flexibility.

Press Trust of India yesterday quoted Kim Joong-Keun, ambassador to the Republic of Korea in India, "We are eager to complete whole size plant as planned in Odisha. If the situation does not permit to do so, we have to be satisfied with a smaller size.” The original 12 million ton per year plant would need 4,004 acres. But so far POSCO has received only 2,000 acres.  According to its officials, another 700 acres will enable the company to start work on a smaller unit of possibly less than half the original capacity.

Interestingly, the environmental clearance for the company's project was recently suspended by the National Green Tribunal, which pointed out that the environment impact assessment report had been prepared only for 4 million ton per annum in the first phase and not for the whole project. So has this judgement forced POSCO's hand? Nevertheless, recent news coming out of the company's camp in India hold out some promise for the country's largest FDI proposal. As they say in Hindi, Der aaye durust aaye!

The thoughts and opinions shared here are of the author.