The Great Iron Ore Heist

Odisha’s Posco project is a brazen example of how the country’s high and mighty are shifting goalposts to favour a powerful foreign MNC

DHINKIA/NUAGAON, ODISHA ~ Under a scorching sun, children of Govindpur and Dhinkia villages in Odisha (formerly Orissa) lie on roasting sand in a semi-circle to block approach roads. A hundred metres behind them lie the women. These human rings are the first line of defence against the administration’s acquisition of land for the Rs 52,000 crore Posco project. On 2 May, Union Minister of Environment & Forests Jairam Ramesh reversed his nine-month-old order banning land acquisition, and on 18 May, revenue officials backed by policemen marched in.

After compensating those “willing to hand over land”, the team ran into stout resistance. Unable to persuade defiant villagers, on 11 June, they sneaked in from the seaside. The daily bulletin proudly proclaimed that the government had taken over 24 betel vineyards. What went unreported: villagers put their vines back up the next day, and women and children returned to take turns under the sun in defence of their land.

It has been six years since the Odisha government signed its much-flaunted Memorandum of Understanding (MoU) with the South Korean steel giant for setting up a huge integrated power-cum-steel plant and captive port, allowing it to mine 600 million tonnes of iron ore in the state. On paper, the government has cleared the plan for the port and plant, but that means little on the ground.

As the battle of nerves intensified in Govindpur, villagers moved a PIL in the Orissa High Court (HC) on 20 May for a stay on the land acquisition (the next hearing is on 20 June). National Board for Wildlife member Biswajit Mohanty also moved the HC against the state for allotting ports to private parties through direct negotiation, without inviting public bids as mandated by the Centre; while the petition will be heard again on 21 June, an interim order on 30 May barred the state from signing any MoU for private ports without the court’s permission—in effect, stalling Odisha’s plan to ink a fresh MoU with Posco (the one signed in 2005 expired last year).

While India pats itself for having netted its single-largest foreign direct investment, Posco is poised to make many times its investment from iron ore alone. The 2005 MoU allowed the South Korean company to extract 600 million tonnes of iron ore over 30 years. Odisha’s 2004 MoU with Tata Steel allowed extraction of just 250 million tonnes of ore for a 6 million tonnes-per-annum (6 MTPA) steel plant at Kalinganagar.  Posco, with a proposed plant of twice that annual capacity (12 MTPA), has been allowed 100 million tonnes of extra ore.

Why does Posco need so much iron ore? Because Posco, as it made clear during its MoU discussions, plans to export 10 million tonnes of ore per year; the 2005 MoU allows it to ship out 30 per cent of the ore it extracts. In fact, the MoU also concedes that Posco may source an additional 400 million tonnes of iron ore from India for its steel plants in South Korea through supply arrangements from the open market. There is a fat margin between the domestic open market (average Rs 4,400/tonne) and the international price (average Rs 7,400/tonne) of iron ore. For 400 million tonnes, it adds up to Rs 1.20 lakh crore at today’s prices.

Posco gets this deal at a delicate time, when the national consensus—of the Government, Judiciary and Indian industry—is moving towards limiting iron ore exports to help the domestic steel industry. India is the world’s largest iron ore exporter after Australia and Brazil. But in terms of per capita reserves, India has only 21 tonnes against Brazil’s 333 tonnes and Australia’s 2,000 tonnes. Various studies have estimated that business-as-usual will exhaust India’s iron ore reserves anytime between 2025 and 2040.

Karnataka banned iron ore exports in 2010, Chhattisgarh is considering the option, and Odisha Chief Minister Naveen Patnaik’s own Steel and Mines Minister Raghunath Mohanty floated a similar proposal this January. Even Ramesh, while issuing the final clearance to Posco on 2 May, hoped that ‘the new MoU would be negotiated by the state government in such a way that exports of iron ore are completely avoided’.

Exports apart, the financial implications of subsidising 600 million tonnes of iron ore for a multinational are grave.

State governments earned a paltry royalty of Rs 27 per tonne till the Centre fixed it at 10 per cent of the domestic market price in 2009. But with global prices ruling as high as Rs 7,400/tonne, after accounting for royalty (about Rs 440/tonne) and operating costs (about Rs 750/tonne on mining, freight, etcetera), an extracting company enjoys a margin of around Rs 6,200/tonne on out-shipped ore. So, if Posco bought the allotted 600 million tonnes of ore in the international market, it would have to shell out an extra Rs 3.72 lakh crore at current prices.

That, at the very least, is India’s gift to a South Korean steel-maker in competition with Indian companies. Ore is not getting any cheaper; its price has risen by over 500 per cent in the past 30 years.

All in all, it represents a generosity of scandalous proportions. Indian buyers, meanwhile, will have to pay global prices for steel from Posco’s Odisha plant. Besides, in 2006, the Posco project got an in-principle approval as a Special Economic Zone (SEZ). This means tax sops that will result in the Centre and Odisha government forfeiting a bulk of the projected Rs 89,000 crore and Rs 22,500 crore, respectively, that they would otherwise have gained in revenues from the project.

Moreover, Posco’s SEZ status (read: free export zone) and the captive port will make it very difficult for the authorities to keep a tab on how much ore Posco ships out from its exclusive facilities. Since the government levies no export duty in SEZs, it will also be much more profitable for Posco to export its steel produce from Odisha than to sell it in the domestic market.

Few emerging countries dump their national interest so casually. Posco tried the same deal in Brazil in 2004 when it inked a pact with Companhia Vale do Rio Doce (CVRD) for setting up a steel plant at the port city of Sao Luis and sourcing cheap ore from the Carajas mine. But CVRD not only insisted that Posco buy ore at the market rate, but also hiked the 2004 price of ore by 71 per cent in 2005.

So Posco shifted focus to Odisha.

Aware of India’s strict green laws, Posco methodically broke down its mega plans into segments first, and then downplayed each component to obtain clearances. The company’s controversial acquisition of 4,004 acres is only for the port and power-cum-steel plant. The project requires another 8,100 acres: 6,100 acres (mostly forest) for mining, and 2,000 acres for two townships (around the steel plant and the mine).

The proposal for the power-cum-steel plant itself is misleading. The application for environmental clearance mentions a 4 MTPA steel plant, not the 12 MPTA one scheduled to come up in six years. The environmental impact of the power plant was considered for only 400 MW installed capacity, not the entire 1,100 MW that would follow.

The primary need, though, is iron ore. Posco is yet to get permission to mine 6,100 acres of lush forest in Kandadhar Hills to extract those 600 million tonnes of ore. On 14 July 2010, the state HC cancelled the out-of-turn allotment of a mining permit to the South Korean firm. In October, the state government moved the apex court against the HC order, and the matter is sub judice.

The second key requirement is water. It is not clear if the approval for fresh water use of 10 million gallons daily (MGD)—slashed from the original approval for 16.5 MGD—is meant for the 4 MPTA production level or the full 12 MPTA level. In 2006, Posco got permission to draw 125 cusecs of water from the Jobra barrage. Following protests by the Mahanadi Banchao Andolan, backed by the BJP, the state asked Posco in September 2010 to draw water from the Hansua River instead. While the company has commissioned a fresh feasibility study, the issue remains unresolved.

Without any certainty on securing ore and water, Posco has frog-leaped itself to acquire land for its plant. The final component—a port to ship its output—was the first unit it got cleared; but again, not without doctoring facts. The captive port was proposed as a minor port to escape the stringent reviews that major ports attract. But the Posco port will construct two massive breakwaters, one 1,070-metres-long to the north and another 1,600-metres-long to the south, to control turbulence. There will be a 13-km-long approach channel, with a minimum width of 250 metres, to allow 170,000 DWT (deadweight tonnage) ships, among the biggest in the business.

Clearly, Posco’s plot is larger than the sum of its parts. Getting started with the port and plant before obtaining rights to ore and water is an attempt to force a fait accompli, a phrase Ramesh himself uses liberally to describe the Navi Mumbai airport, Jaitapur nuclear plant and coal blocks across India.

Not that everyone was blind. In November 2007, the Supreme Court’s   (SC) Central Empowered Committee (CEC) in its report noted that ‘instead of piecemeal diversion of forest land for the project, it would be appropriate that the total forest land required for the project, including for mining, is assessed and a decision for diversion of forest land is taken for the entire forest land’. In fact, the SC’s in-principle approval in August 2008 of the diversion of 3,093 acres of forest land for the Posco plant shared these concerns. But the Ministry of Environment & Forests (MoEF) was not listening.

Nandigram, Singur, Noida or Jaitapur, land acquisition for industrial use has been a highly sensitive issue in India. Posco’s case in Odisha is even more complex. Since 3,097 hectares of the 4,004-acre proposed project area is classified as forest land, Posco required environmental clearance for land diversion. However, there is no trace of wilderness in the Posco project area. What was ‘dense deciduous forest’ in British records in the 1920s has disappeared since. Betel vines, arguably the country’s finest, and paddy fields have taken over. But the Forest Rights Act (FRA) came into force in January 2008, empowering forest dwellers to determine the nature and extent of forest land use.

Community resistance, however, started snowballing soon after the Odisha government signed the controversial MoU in June 2005. By 2008, the project got a few in-principle green clearances. Then, Ramesh took over the MoEF in May 2009, and, within three months, ordered that no forest land be diverted for Posco without the consent of the affected gram sabhas.

In a volte face five months on, Ramesh granted the ‘final clearance’ for land diversion on 29 December, in violation of his August order. Again, unable to defend the somersault, he had to issue a clarification in 10 days flat. On 8 January 2010, he wrote to the state that ‘final clearance’ was ‘conditional’, depending on the settlement of rights under the FRA.

What followed was surreal. Odisha claimed that there were no tribals or traditional forest dwellers in the project area. In the next few months, two Centre-appointed committees—under NC Saxena and Meena Gupta—nailed those lies. Following the first report, the MoEF stopped land acquisition in August 2010. Based on the second report—that called the state’s claims ‘false’ and‘fabricated’—the Ministry’s Forest Advisory Committee (FAC) on 19 November 2010 recommended temporary withdrawal of the forest clearance.

But Ramesh offered yet another ‘conditional’ final clearance on 31 January this year. The project was on if Odisha could give an ‘assurance’ that there were no ‘eligible persons’ under the FRA in the area. In its ‘assurance’, the state government repeated all the claims earlier trashed as ‘false’ by government inquiry panels. Then, on 29 April, it deemed the gram sabhas ‘illegal’ and the resolutions ‘fake’.

On 2 May, keeping “faith… in what the state government says”, Ramesh gave a ‘final approval’ for land diversion.

Ramesh’s apparent leap of faith is not out of sync with the alarming alacrity shown by his predecessors in the green ministry in pushing the Posco project. But were they under pressure from their bosses and colleagues in the Government?

Consider the following:

l In 2007, a file noting on 8 May shows that the Finance Ministry sought an update on the Posco project. The next day, a letter from the Director of Disinvestment wanted the status of the Posco proposal to be sent to the Finance Ministry by

18 May, as the then Finance Minister P Chidambaram was meeting members of the Investment Commission on 24 May.

Within days, a few hours before he relinquished the MoEF to take over the Telecom Ministry on 16 May, A Raja issued Posco’s port its environment clearance, perhaps the last of the 2,016 green clearances he granted in just 36 months.

» Again in 2007, a letter dated 4 June from the Finance Ministry sought the status of the Posco applications by 11 June, for a review meeting on the project’s progress scheduled for 16 June. The MoEF Expert Appraisal Committee (EAC) cleared the plant at its meeting on 20 June. The Meena Gupta inquiry committee majority noted that ‘the proximity of dates between the letters from the Finance Ministry and the hasty processing of the approvals by the MoEF and EAC, despite the serious shortcomings and illegalities, is more than a mere coincidence’ and ‘the brazen interference of the Ministry of Finance into [the] functioning of another Ministry is most unfortunate, highly improper and against public interest’.

» Meena Gupta took charge as MoEF secretary on 1 June 2007. Since Raja had already moved to telecom, the MoEF was effectively under the Prime Minister’s Office. Posco had applied for port clearance in September 2006, and it took Raja eight months to okay it. The application for environmental clearance of the Posco plant was filed on 27 April 2007. Under the PMO, Gupta issued the clearance on 19 July, in less than three months. Again, when the Odisha government sought clearance for diverting 3,000 acres of forest land for the plant on 26 June 2007, Gupta promptly obtained an in-principle nod from the ministry’s FAC on 9 August 2007.

» Could it be a coincidence that Ramesh handpicked the same Meena Gupta to head the four-member fact-finding committee in 2010? Unsurprisingly, Gupta was the lone dissenter in the panel and found nothing wrong with the clearance for land diversion that she had issued herself.

» Prime Minister Manmohan Singh, along with Odisha CM Naveen Patnaik, assured South Korean President Lee Myung-bak of the speedy clearance of Posco’s project when the latter was in New Delhi as chief guest for the Republic Day parade last year. Minister of Steel Virbhadra Singh even offered a six-month deadline for the handover of land to the Posco delegation that accompanied the South Korean President.

Dr Singh repeated the assurance at the 17th Asean summit at Hanoi last October. At the G-20 summit at Seoul last November, India’s Ambassador to South Korea SR Tayal said there was “a common desire on both sides to see the project through” and “every effort is being made by all stakeholders”.

It is surprising how such personal commitments were issued on an issue to be decided on its legal merit. It seems the pressure on the MoEF to clear the project before the G-20 meet was enormous. After failing to meet the deadline, Ramesh blamed the FAC for delaying its report and assured the who’s who in the country’s power circles that “the decision will be taken within a couple of weeks”.

Eventually, it took Ramesh a few months to mock the FAC and sundry committees of his own making to clear Posco with a lofty justification: “Beyond a point, the bona fides of a democratically elected state government cannot always be questioned by the Centre”. But can the bona fides of a democratically elected gram panchayat be questioned any more than that of a state government? 

For the villagers of Dhinkia, it may be too late for an answer.

Jay Mazoomdaar is an independent journalist

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Jay Mazoomdaar