By Nageshwar Patnaik in Bhubaneswar, March 19, 2017 : Odisha appears to be losing out as favourite investment destination in the country with South Korean steel major Posco scrapping its plan to set up a 12-million tonne (mt) steel mill in Paradip at a whopping cost of Rs 52,000 crore.

Posco steel plant project was once billed as the India’s biggest Foreign Direct Investment [FDI] project that would catapult Odisha into the big league and as one of the most favoured business destinations globally.

However, in less than four years, the state had lost the second mega foreign direct investment (FDI) project after ArcelorMittal withdrew its big ticket steel plant project in 2013.

The Odisha government has signed MoUs with 92 companies across sectors like steel, aluminium, cement, thermal power, downstream, auto components and petrochemicals since 2004. The proposed investment by these companies was pegged at Rs 5.68 lakh crore, industry minister Devi Prasad Mishra last week told the state Assembly.

But only 46 out of the 92 units that have signed MoU, have commenced either partial or full scale production. Interestingly, bulk of the investments has flown from the steel sector with 48 MoUs.

As many as 33 steel units have already started partial or full scale production, investing around Rs 1.3 lakh crore, creating capacity of nearly 15 million tonne. Tata Steel, Bhushan Steel and Jindal Steel & Power Ltd (JSPL) have been the major investors.

However, the leading steel companies of the world like ArcelorMittal and Posco, who had shown interest to put up Greenfield plants in Odisha and inked MoUs with the state government with much hype, have now totally withdrawn shattering the dreams of having a mega steel plant.

The South Korean steel major had plans to mine iron ores, build a steel plant and set up a captive port for an estimated cost of Rs 52,000 crore, which at the current cost has shot off to more than Rs 65,000 crore. The project represented the single largest injection of foreign direct investment (FDI) in the country and would have enriched the stage coffer close to Rs.750 crore in tax revenue every year for 30 years.

Bogged by delays in land acquisitions, mining rights and environmental clearances, the steel major had scaled down their Odisha plans to eight million tons per annum [mtpa] in capacity after the land promised for the project was reduced to half.

What has complicated most of the mega projects is the stand of union ministry of forests and environment and union ministry of mines. The focus on the environment sharpened after National Green Tribunal [NGT] ordered a suspension on the environment clearance that was given to POSCO.

The NGT’s directive came at a time when the Odisha government had initiated process of land acquisition for the country’s biggest FDI project, for which 4,004 acres were required. But there was inordinate delay in the land acquisition due to prolonged agitation by the locals led by Posco Pratirodh Sangram Samiti [PPSS].

The state had tried to crush movements opposing to hand over their land, water and forests to corporate. The peasants, workers and Adivasis of Odisha have refused to buckle under state pressure and have put up stiff resistance to the forcible eviction all over the state.

But Posco project just could not take off as beside land, it had problems in acquiring mining rights.

More significantly, the failure in grounding of Posco project can be attributed to the valuation of natural resources, particularly the iron ore – the bulk input to make steel. With the change of guard at the centre, the entire gamut of mining policies took a twist with the Narendra Modi government deciding to put the mineral resources on auction mode.

The Khandhadhar iron ore mine reserve, which was earmarked for Posco by the Naveen Patnaik government, will be put for auction and that is a clear signal that the South Korean company has to bid. This is what precisely, Posco did not want. From the day one, Posco had made it clear that since it did not have direct access to iron ore mines anywhere in the world, Odisha steel plant proposal, which entailed a captive mine, attracted to the state for the largest FDI investment.

The Posco tangle also has exposed the high-level of mistrust between state governments and the centre. The Naveen Patnaik government had been constantly claiming that the centre has all the time been acting against its interests. There may be some truth in the claim as the state government’s efforts to bring large industrial projects have been stymied by the centre thanks to the archaic Environment Protection Act, 1986 and mining policies. Posco episode only reinforces this.