Why Global Steel Companies Can't Be Friends With India

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Short answer: because the Indian government doesn’t know how to befriend ArcelorMittal, POSCO, and other steel producers. (In this case, “friends” of course means “business partners” in a situation where both benefit.)

But the slightly longer answer begins with India’s borderline-absurd bureaucratic and regulatory demands, not to mention its haphazard policy of late on iron ore, resulting in its short supply.

All of which is ironic, because one day before POSCO’s decision to move out, Indian Prime Minister Manmohan Singh had announced a series of decisions that industry across sectors hoped would kick-start the entire  foreign direct investment (FDI) process.

Taking steel production capacity to 300 million tons a year was one of the measures the government proposed, a proposal that only invited smirks from steel analysts who later pointed out that the earlier milestone of 200 million tons a year for steel by 2020 was far from being on course.

FREE Download: The latest Monthly MMI® Report – covering the Steel/Iron Ore markets.

POSCO’s agreement in June 2010 with the Indian government was to set up a 6-million-ton-a-year (mtpa) steel plant in Karnataka. ArcelorMittal, on the other hand, had signed a Memorandum of Understanding (MoU) with the state government on Dec. 21, 2006, to set up the 12-million-ton steel plant in Odisha. The MoU, which expired in December 2011 was due for renewal.

In both pullout cases, land seems to be the major bone of contention.

Land Grab

Because of the Indian federal structure, it was the responsibility of the respective local governments to procure land for the two projects, but delays caused the upsets.

In POSCO’s Karnataka project, land was to be acquired by the Karnataka Industrial Area Development Board (KIADB). But it failed to do that for over two years. In the ArcelorMittal Karnakata plant case, too, it had been the duty of the KIADB to acquire land, which again was delayed.

Yong Won Yoon, POSCO’s India CMD, did not mince words when he said that with “the given market conditions and significant delay in acquiring the required land…. they had decided to close the proposed 6 mtpa steel plant in Karnataka.”

Besides land acquisition, the other major pain points stemmed from delays in receiving iron ore exploration licenses and anticipated environment permissions. The concerned government had also delayed the allotment of a captive iron mine in the ArcelorMittal project.

More in Part Three.

FREE Download: The latest Monthly MMI® Report – covering the Steel/Iron Ore markets.

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