The South Asian: Signing Away Orissa

December 21, 2005

Signing Away Orissa - The POSCO MoU

What is POSCO taking away as part of this MoU, what are the people of Orissa getting in return and what is the Indian government getting? And why has the state government been stingy with information?

According to the MoU, POSCO will construct a steel plant at Paradeep in Jagatsinghpur district of Orissa with an annual production capacity of 12 million tonnes steel with the plant planning to produce 3 million tonnes of steel by the year 2010 and 12 million tonnes by 2016. The company will spend Rs 51,000 crore for this plant in phases.

To help POSCO produce steel, the Orissa government has promised to hand over coal mines to POSCO so that they may produce their own electricity. POSCO will have to make no payments for the use of these mines.

As per this plan, POSCO needs 600 million tonnes of ore from the government of Orissa. Free. POSCO, in fact plans to export 30% of the coal and in addition bring in similar amounts from Brazil to use in this plant. In addition, there seem to be clauses that may allow POSCO to take away up to 400 million tonnes to Korea. For free.

Iron Ore is available at Rs. 2000 to Rs. 26000 per ton. Discounting extraction costs at Rs 400 per ton, the state government is subsidizing POSCO at Rs. 96000 crore per year in only the use of iron ore. And this does not include the amount it may take away.

The MoU is set up to allow extraction for 30 years with extension possible for 20 years. In addition, unspecified amounts of chromium and manganese will also be provided to POSCO. Dolomite and limestone will also be made available at subsidized rates.

The MoU also promises water to POSCO from the Mahanadi from Jobra barrage. For free. The MoU is silent about the quantity of water to be provided. The government does not answer where those regions currently getting water for irrigation will find water.

In order to increase profits for POSCO, the government of Orissa has committed itself to recommend to government of India to constitute a Special Economic Zone (SEZ). If granted, the company will not have to follow various trade and economic regulations. None can compel POSCO to even pay tax in view of liberalised regime prevalent in SEZs.

POSCO will also construct its own port at Paradeep. The government will also construct, for free, a railway line from Haridaspur-Paradeep and Bansapanl-Paradeep for export of POSCO company’s iron ore. The company will also construct a line from the mines to the plant for which the government has agreed to provide support.

In addition, the state government has promised to provide about 20-25 acres of land in Bhubaneswar and hand it over to POSCO for its office. At what price the company will take this land has not been mentioned. The state government will also provide about 6500 acres of land for the plant site in Paradeep. There is no statement regarding the price that POSCO will pay for this land.

In addition, senior IAS officers of the state will be put at the service of POSCO for implementation and coordination. One senior officer will be appointed as nodal officer and he will look after the interests of POSCO. It is mentioned in the conditionalities also that POSCO wants can accept foreign and indigenous private players as partners, whenever it finds necessary.

As per current understanding, in 30 years time, the government of Orissa will get Rs 22,500 crore and the central government Rs 89,000 crore i.e. a total of Rs 1,11,500 crore in the form of tax revenue. This works out to Rs 3,700 crore income per annum. This is less than the amount Orissa is paying POSCO in subsidies only for Iron Ores.

For a project as large as this, there is very little public information available. Some of the information is provided by POSCO on its website. The Hindu has carried some of this debate, there has been some debate on internet lists and that has been largely it. Some numbers are also available from the Communist Party discussions in Orissa.

If the numbers used in these discussions are incorrect, it is the responsibility of the government to correct them. Einstein once said that extraordinary claims need extraordinary proofs. Indeed, a project of this size requires the government of the state to present more details to the people. This is not a favor. It is an obligation.

Posted by collective at December 21, 2005 10:55 AM

Comments

Good to know the facts, Santy.
This is a 12 Billion opportunity in direct investment, the largest ever by almost factor of 5, in the history of attracting investment since 1991. It will add to infrastructure through a seaport that POSCO will build to facilitate its supply chain and transportation logistics.
If India wants to compete with China for FDI (5 Billion versus 65 Billion in 2005), it needs to play its cards with full knowledge of the "customer". Power and Infrastructure are the two big dampeners on any large-scale manufacturing investment in India. Makes cost of manufacturing unacceptably high, if the company has to produce its own power and stack up monstrous inventories to hedge against transportation delays caused by low through-put road-/rail-/water-way infrastructure. Orissa govt., after much deliberation, is catering to both pain points by enabling power (through the coal) and supply chaon infrastructure (through the seaport). One way to understand this logic is: No gain without pain. This is initial pain that attracts the gain of committed investment. The benefits of the investment, in terms of employment to the locals, tax-revenue potential to the government, and wealth creation will follow. A sensible government will see the pains that the above gain could cause to dispossessed locals, and the ever-suffering environment(-alists). If government does its job well, then it will have created the right incentives for POSCO and others to emulate and follow, to be sensitive to the "externalities" that you often mention. The bottom-line that any company and its shareholders follow: "You set the rules. I'll play to win". It is upto the govt. to design the rule system, via proper legislation and enforcement with penalty for violation. A delicate balance, easier said that done.
Also, such a big investment could act as a precedent to bring more manufacturing sector investment. It can only be good, if we get the right design within which companies play. Giving a concession or two, to nucleate the process is infact in our interest. Managing the dynamics of the transients to the steady state is where effective "governmental process control" can make the difference, if it has its objective function well balanced in terms of the weighting coefficients of various competing terms: long-term benefits, "externalities", short-term problem of dislocation of people and so on.
All is not that bad. POSCO deal has lots of gains, beyond the obvious starting pains.
But good that you are raising valid questions, as it can serve to help the government design its optimal objective function.
Cheers, S
Posted by: Shankar on January 5, 2006 10:42 AM

People like these commentators do not like Orissa to prosper.
Which are the paragraphs in the MoU which says free coal and free Railways to POSCO?
Coal is cetrally handled, Even State of ORissa is fighting for a higher roalty on coal which GOI is not inclened to show any sign of concedeing. Had it been a northern Indian State or the state of Maharashtra GOI wd have conceded.
Railways are GOI controlled. How can Orissa build it free?
Did you ever find fault with ENRON power project in Maharshtra when it was on? Both Congress and NCP took lots of bribe under the head of account (?) of "educating the public". I had written in 1995 that it will fail, the way the GOM and GOI conceded to the deamnds of ENRON. See my articles in Dharitri in 1995 or my book "Anyara Ainare"
When will people talk stop talking negatively about Orissa?
God, forgive them for they know not what they say
Posted by: Sahadeva Sahoo on January 14, 2006 11:08 AM

Hi!My name is Ainare (It isn?t a joke). I?m from de Baske Country(near...Spain). I?d like to know what "Ainare" means in your lenguage.Is it a person name?Why have you named your book like that?
It?s very important for my to know de answear.
Thank you very much
Posted by: Ainare on June 20, 2006 01:15 PM

Posco India roject is a good project for people of Jagatsinghpur & also for orissa and subsequently for India , we should proud to be apart of the enterprises.osco which create opprtunity of employment, Infrastructure by which per capita income raise, accordining to SCBA ( Socila and cost benefit analyssis it has necesscity.
Subha Narayan Mishra
Secretary,isrdo
Naradia,Erasama, Jagatsinghpur.
Posted by: Secretary, isrdo on June 24, 2006 11:06 PM

Dear Friends:
The below article is in yesterday's Wall Street Journal. I had said in my last June's blog ( http://mathtalentsearch.blogspot.com/2006/06/revisiting-orissa-development-plans.html ) that the steel Industry are not in Orissa for their love of Orissa but for making super profits.
Our bureaucrats are so ill informed or so compromised that not only they are selling iron or at Rs. 26 / Tonne or about $0.57 cents/ Tonne when real prices are world market prices $44 worst Quality and $76 the best quality. And going up.

And then top it with SEZ qualification to their factories, so they don't pay sales tax for 1st 10 years. Why can't we make them pay market price?
It is like Dr. Chitta Baral says - giving away family silver.

Again what about our journalists, where are they?

No wonder we are poor and this way we will remain poor.
Does it make sense to any one??
Best wishes,
Sandip

http://infosources.blogspot.com/2006/12/steelmakers-want-to-restrain-iron-ore.html
Posted by: Sandip Dasverma on December 10, 2006 08:31 PM

No doubt posco is largest fdi in india, but it is in no way helpfull to state or people of orissa. singing mou with posco , orissa govt. has made a big blonder.
Posted by: pradeep subudhi on June 6, 2007 04:36 AM

POSCO Steel plant at Orissa one of the larget FDI in India.This Congress and CPI can not do any other than simply protest . Pls go head with the project

Subash
Posted by: Subash KU Palai on September 11, 2007 12:10 AM

Most of us have no idea about document has to be signed by .We should be clear on this then can pass the concrete comments and as well if you see the protest are going on the base location they are mostly illetrate and have no idea what they are doing completely politically biased.we have not seen any industrial development by opponent.so do not digest to pass the credit of success to existing GOVT... so we people shd realise and can boost to haapen this for us.This is going to happen for our growth......
Orrisa govt is doing the best job what they can till with gandhigiri otherwise you may habe seen one more nandigram....worst peole.
Posted by: sumanta swain on January 10, 2008 03:48 PM

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