Will Prime Minister’s ‘Korea Plus Channel’ help retain POSCO investment

Prime Minister Narendra Modi’s hopes for mobilizing foreign direct investments (FDIs) for bolstering growth and job creation may meet its first casualty if the South Korean steel major POSCO takes a firm stand on withdrawing from its proposed project in Odisha. The main reason for this would be not providing mining lease on out-of-turn basis in the spirit of the Bilateral Investment Promotion and Protection Agreement signed between the two countries way back in 1996.

South Korean investments in India surged after signing of this agreement, touching $ 3.8 billion in December 2014. South Korean companies forayed into India much before the Make in India programme was launched by Mr Modi. Sicne the South Korean companies source locally and facilitate indigenisation, they causing local contentment. From its manufacturing base in Chennai, Hyundai Motor India has exported about 2.2 million cars to 123 countries in five continents. With a total investment of $2.7 billion, yearly turnover is about $5 billion, and about 150,000 direct and indirect jobs created, it has been a success story.

India has urged Hyundai to set up another manufacturing base in the country. Over 600 South Korean companies manufacture in India and the country remains one of the largest sources for inbound investment. The firms cover a wide range of sectors- automobiles, power and industrial systems, refrigerating, asset management- and many, such as LG, have become household names.

Poised at about 12 billion USD, POSCO’s proposed investment in the steel plant in Odisha’s Jagatsinghpur district is slated to be the largest thus far. It is feared that the termination of this project could send wrong signals to foreign investors at a time when India is seeking investments to revive manufacturing.

The problem in getting mining lease is that the recently passed Mines and Minerals Development and Regulation (Amendment) Act mandates the auction route for getting mines on lease. The Modi government has insisted that bidding process should be transparent to avoid any irregularities and POSCO has merely been told to join the bidding process.

But since it was the Indian government which invited POSCO and promised to promote and protect the massive investment by signing a Bilateral Investment Promotion and Protection Agreement, a case can be made that the government needs to find an alternative way out. Solving the POSCO tangle could send a positive signal across the globe on the front of Make in India and Ease of Doing Business, especially since confusion still prevails over the issue of retroactive taxation.

During his recent visit to South Korea, Mr Modi said, “we will establish a channel- Korea Plus- to facilitate their investment and operations in India.” Questions arise as to whether this Korea Plus channel would help POSCO in getting mining lease and if the government would create such special channels to facilitate investments from other countries with which it has entered into similar protection agreements.

Odisha Chief Minister Naveen Patnaik has done his bit in providing land to POSCO despite strong opposition from activists. POSCO India had entered into agreement with the Odisha government in June 2005 for setting up of a 12 million tonne per annum (mtpa) steel plant in Jagatsinghpur district at an investment of $12 billion on 4,000 acre land. Subsequently the company scaled down the plant capacity to 8 mtpa and said that it needed 2,700 acre land. Of this, the state government has already provided 1,700 acres to the company.

For the first time in 2006, the state government had recommended in favour of POSCO to get prospecting licence over Khandadhar reserves in Sundargarh district. However the then UPA government led by Dr Manmohan Singh refused to consider the case separately and asked the company to participate in open bidding. Later, when the BJP-led government came to power at the Centre, the state government renewed its request for POSCO three days before promulgation of the Mines and Minerals Development and Regulation Ordinance. Now the Central ministers have begun trading charges. The Union Minister of State for Petroleum and Natural Gas Dharmendra Pradhan has alleged that the state government recommended POSCO’s case only three days before the promulgation of the Ordinance that mandates auction of mines. The Union Minister of State for Commerce and Industry, Nirmala Sitharaman, said, “the state government had neither sent any such Letter of Intent nor renewed the Memorandum of Understanding before the promulgation of the Ordinance.”

However, to resolve the uncertainty over POSCO getting mining lease, the Odisha Steel and Mines Minister, Prafulla Mallick, suggested that the state government PSU, Odisha Mining Corporation, will supply iron ore to meet POSCO’s demand so that it can produce 12 mtpa crude steel and 11.28 mtpa finished steel.

But the tussle between the state and the Union government and the growing uncertainty over its mining lease has led POSCO to withdraw from Hardaspur-Paradip rail project which is crucial for the company to source raw materials for its plant and also link to the Paradip port for exports. Refusing to pay Rs 54 core demanded by the state government’s IDCO for land acquisition, it has asked for the refund of about INR 27.5 crore paid earlier.

Even as the POSCO’s Odisha project has become a bitter pill, the South Korean major is in talks with SAIL, for setting up of an integrated steel plant of 3mtpa capacity in Jharkhand. It may be recalled that earlier talks between the two for a steel plant at Bokaro failed due to an ownership issue- POSCO was demanding a majority stake to which SAIL has not agreed.

Prime Minister Modi had assured President Park Geun-hye during his visit to South Korea as well as their previous interaction during the East Asia Summit in Myanmar last year that he would resolve the POSCO issue. Though Mr Modi intends to resolve the issue through a separate “Korea Plus Channel”, it remains to be seen how this shall materialise.

(Ashok B. Sharma is a Delhi-based journalist)

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