___________

The economic times reports that the new mineral policy has been announced. Excerpts are mentioned in another post. Here, we list it’s salient features.

• The GoM has accepted the views of the mining industry while recommending no changes in the guidelines for exports.[This decision supports POSCO’s case for captive mines]
• More powers provided to state government. The state governments will be able to give preference to companies undertaking value addition within the state while allotting iron ore mines. This will reduce standalone mines.
• The policy will provide captive mines to all steel units in operation up to July 2006.[I’m not sure about it’s implications for POSCO]
• The policy will now aim towards procedural simplification for attracting investments in the sector.
• It will also benefit the states as under the new policy, the present system of specific rate royalty will shift to ad valorem rate of 7.5%.[This will have great benefits for Orissa and other mineral rich states]. Once notified, the proposal will increase royalty earnings by almost six times.
• The states sitting over mining applications of companies will be penalised as delays will transfer their powers to the Centre.
• Another important aspect of the new policy is that a process of competitive bidding can be initiated for allocation of captive coal blocks. This is presently done by a screening committee within the coal ministry. The bidding process will also be started for all other major minerals.
• Besides, the government will auction mining areas where full prospecting has to be done.
• Companies will have to earmark 3% of turnover for undertaking rehabilitation and resettlement of displaced people under a sustainable development model. However, the ministry of environment and forests will work out fresh guidelines separately to introduce environment-friendly mining practices in the industry.

The economic times states that mining areas will be auctioned for prospecting but the Telegraph says that Auctions mean global giants such as Posco and ArcelorMittal will not be allowed to negotiate for leases with Jharkhand and Orissa on the basis of plans for units in these states. Of course, this statement is speculative. But the states need to be careful before agreeing to this proposal.

Perhaps, We will have to wait and watch for the final notification on the policy.

Various news reports mention that BHP Biliton’s proposal has been rejected by the Orissa government as it did not have an appropriate value addition component. Following are excerpts from the Financial Express report.

The Orissa government has rejected BHP Billiton’s proposal to set up a 3-million tonne alumina refinery special economic zone (SEZ) in Gopalpur with an investemnt of $3.3 billion (Rs 14,000 crore). …

The government reportedly refused to accept the offer on the ground that the project did not have any proposal for aluminium smelter. The state government, which is insisting on value addition to at least 50% of the alumina in the state as part of its bauxite mineral policy, has asked the company to submit a fresh proposal with facilities for production of aluminium.

BHP Billiton has sought bauxite mines with proven reserve of 300 million tonne and 5500 acre in Gopalpur for the project.

Following are excerpts from the Economic Times report on this:

A GROUP of ministers (GoM) on Friday cleared the National Mineral Policy that retains the freedom of mining companies to export iron ore without restrictions on quantity or quality. …

The decision also clears the cloud over Posco’s proposed steel project in Orissa that has proposed to export some portion of ore from its captive mines. The company has proposed the exports to enable it to import high-grade ore required for mixing.

However, in order to facilitate value addition within the country and boost steel production, the new policy has given more powers to the state. The state governments will be able to give preference to companies undertaking value addition within the state while allotting iron ore mines. This will mean standalone mining activities will be disincentivised. However, the entire country will be treated as one economic region and states will have to permit transfer of ore outside the state if no one is willing to put up a plant there.

Moreover, the GoM has decided that a balanced policy will be followed while granting captive iron ore mines to steel companies. The policy will, therefore, provide captive mines to all steel units in operation up to July 2006 . It will also benefit the states as under the new policy, the present system of specific rate royalty will shift to ad valorem rate of 7.5%. Once notified, the proposal will increase royalty earnings by almost six times. For example, royalty earnings from iron ore of five ore producing states work out to Rs 250 crore. This will increase to Rs 1,250 crore under the new regime.

However, the new policy will also clip some of the powers of the states. The states sitting over mining applications of companies will be penalised as delays will transfer their powers to the Centre.

Another important aspect of the new policy is that a process of competitive bidding can be initiated for allocation of captive coal blocks. This is presently done by a screening committee within the coal ministry. The bidding process will also be started for all other major minerals.

Besides, the government will auction mining areas where full prospecting has to be done. This will require amendments to the Mines and Mineral (Development & Regulation) Act, 1957, that is likely to be introduced during the monsoon session of Parliament.

Under the new policy, companies will have to earmark 3% of turnover for undertaking rehabilitation and resettlement of displaced people under a sustainable development model. However, the ministry of environment and forests will work out fresh guidelines separately to introduce environment-friendly mining practices in the industry.

Financial express carried a short interview of POSCO India Chairman and MD with journalist Dilip Bisoi. This interview gives a good idea of the status of the POSCO India project. Following are some excerpts:

• How you are going to accelerate the project’s implementation? We have chalked out a strategy to implement the project. We are preparing to start the ground preparation work by October 2007. Out of the 4,004 acre of land, 3,566 acre is government land and 438 acre is private land. Out of the private land, only 30 acre is fertile land as it yields double crops. We are willing to exclude the 30-acre fertile land from the project site. We are also willing to differ use of the 438 acre private land until the villagers were willing to sell.
• Anti-Posco activists have set up checkpoints and are not allowing anybody to enter the site. How do you plan to enter the area and start work? It is not true that we don’t have access to the site. We do have some access to the site. Villagers in Gadakujanga grampanchayat are supporting the project, while people in Nuagoan area are starting to change their mind in favour of the project. Only a small area of Dhinkia grampanchayat is not accessible. We will shed that portion from the project site for the time being. Access to the site and starting civil work will not be difficult.
• Have you prepared your R&R package?  We are preparing a special R&R package for the displaced people. The Xavier Institute of Management, Bhubaneswar, has been engaged in conducting a survey to understand the needs of the people. The package will be announced once it gets the approval of the Rehabilitation & Peripheral Development Authority. I promise, I will make their lives better than before. Rehabilitating 450 displaced families is not a big job. We want to provide them with a sustainable livelihood.
• How confident you are that the project work will start by October 2007? The next two to three months are very crucial. The prospecting licence for the Khandahar iron ore mines and forest clearance for the project site are expected in the next few months. Once these issues are settled, we will go ahead with the land preparation. If everything goes according to plan, we will procure equipment for the steel plant by the second half of next year. We will shop in the Indian market before going to Asian countries like China and Vietnam. The main plant, however, will be imported from Posco in South Korea. However, starting of the peripheral work at the site by October is very essential.

Recently there were some reports on Greenpeace’s opposition to the Dhamara port. Following are some excerpts of a news report that talks about Tata Steel’s response.

India’s Tata Steel Ltd said it will go ahead with its 24.6 bln rupee joint venture with Larsen & Toubro to set up an all-weather port at Dhamra, in the eastern Indian state of Orissa.

Tata Steel spokesperson Yogesh Joshi said the company had no intention of abandoning the project and said work will continue as usual. …

Dhamra port is crucial for India as traffic is projected to grow to 2 bln tonnes by the year 2016, and all the ports of the country put together are presently handling only 760 mln tonnes.

Sheltered between the mainland and the Kanika Sands Island on the eastern coast, Dhamra port will be the deepest all-weather port of its kind in India, with a draught of 18.5 metres. It will be able to accommodate super cape-size vessels of up to 180,000 dead weight tonnes.

The following article from Samaja lists the various steel plants in operation and under construction in the Kalinganagar area. They are: Nilachal Ispat Nigam Limited, Jindal, MESCO, VISA, JK Steel, Rohit, Dinabandhu and Maithan which have started production; and Tata Steel which is in preparation.

Economic Times reports  road development related to POSCO’s proposed operations. Following are excerpts from that report.

… the government has decided to develop 600 km of highways, to be called Posco roads, to provide connectivity for the 12 million-tonne capacity steel plant in Orissa. The Rs 4,000-crore highway would be constructed on built-operate-transfer (BOT) model and would be completed by 2010. 

The projects are part of phase-III of the National Highways Development Programme (NHDP). The Posco package consists of seven road stretches, including Panikholi-Keonjhar-Rimoli on national highway (NH)-215 and Chandikhole-Duburi on NH-200. The Cuttack-Paradip state road, jointly funded by the Orissa government, Paradip Port Trust and the roads ministry, will also help serve the transport of goods to and from Posco’s steel plant.

“NH-215 and NH-200 will be specifically geared to carry iron-ore traffic,” the official said. “The roads will serve Orissa’s industrial requirements for upcoming projects in the state, but Posco will be the biggest beneficiary,” he added.  …

Apart from road connectivity being provided by the Centre and the state government, a special purpose vehicle (SPV) to link Haridaspur and Paradip by railways has been formed by Rail Vikas Nigam (RVNL) in which Posco has 10% equity,” a Posco spokesperson said.  …

Posco-India will also build a captive port at Jatadhari, 10 km from Paradip and a captive power plant with a capacity of 1300 mw.  …

The company will also lay pipelines for industrial water utilisation from Jobra barrage.

On the ongoing tussle to make MCK comply with R & R policies MP Dharmendar Pradhan has compared MCL’s hirings with other similar companies hirings. New Indian Express gives a report on this and we give some excerpts from that report.

The average annual production of coal in Eastern Coalfields Limited (ECL) is 30 million tonne with a workforce of 1.02 lakh; with 95,000 manpower, the annual production of Bharat Coking Coal Limited (BCCL) is about 23 million tonne, and Central Coalfields Limited (CCL) has nearly 90,000 workforce to produce 32 million tonne.

Similarly, the Western Coalfields Limited (WCL) has about 70,000 employees with an annual production of 42 million tonne. The South Eastern Coalfields Limited (SECL) is the largest producer of coal with annual production of 88 million tonne and has 80,000 workforce.

On the other hand, MCL, the second largest producer of coking grade coal in the country with average annual production of 80 million tonne, has given jobs to 20,591 people. The company has been facing resistance from the locals for its poor policy on resettlement and rehabilitation.

MCL’s Chairman and Managing Director Aviram Sharma was caught on the wrong foot when Dharmendra Pradhan, MP, sought to know from him the manpower position in other subsidiaries of Coal India vis-a-vis their production at a high level meeting here on Thursday. The meeting was convened to discuss the contentious issue of R&R policy in MCL areas.

Pradhan told the meeting that there are nearly 5,000 rightful claimants for compensatory job in MCL. Besides, MCL is not doing a favour to them as they have already lost their land and livelihood, he argued.

Revenue Minister Manmohan Samal, who presided over the meeting, directed MCL and NTPC to implement the policy and report it every week on the progress.

Now, just because MCL employs less it does not become a bad guy. But, if must follow the R & R policies and also keep its promises. Moreover, it should consider the action by Central Coal Fields to set up an engineering college in Jharkhand. Following is an excerpt from the Business Standard article that reported on this.

The Jharkhand-based public sector Central Coalfields Limited (CCL) has established 68 schools in various parts of its working areas of different standards besides financial and other infrastructural help to 195 schools situated in and around CCL command area.

CCL has recently decided to establish on engineering college for the benefit of the people of Jharkhand.

CCL spent over Rs 1042 crore on social overhead onwards 1998. It had constructed over 160 km of heavy duty coal transportation roads. 300 km of approach road and equal length of colony roads, 6 major bridges on river Damodar, 59,455 permanent houses, 19 hospitals besides water supply schemes covering over a population of 5.02
lakh. CCL is also one of the major employers in Jharkhand.

It has 62,827 employees on the roll of which 35 per cent belonged to Schedules caste and Scheduled tribes.

The company is also one of the major contributors to state exchequer. The state has earned over Rs 2811.56 crore of royalty and other taxes from CCL?s mining activities after the constitution of Jharkhand state. …

In the financial year 2006-07, CCL has constructed/repaired 35 km new roads in nearby villages in its command area. Over and above, CCL is to organise 215 health camps for various specializations during this financial year.

Statesman reports that the Orissa government has asked MCL to provide jobs to displaced people. Following are some excerpts from that report.

The state government today directed Mahanadi Coalfields Ltd to provide jobs to all those affected or displaced persons within four weeks and also asked other PSUs ~ NTPC and Nalco ~ to furnish weekly progress reports on rehabilitation measures. The decisions were taken at a high level meeting convened by revenue minister Mr Manmohan Samal here today. …

Mr Samal today directed that all categories of land losers and affected persons ought to be provided with employment within four weeks. Interestingly, he is also believed to have told the Central PSU that they should go by the Land Acquisition Act and not the Coal Bearing Act. The implementation of Coal Bearing Act had created problems since much of the land was notified but lying unacquired physically for several years. In the process, the land owner was unable to either sell or do anything with the land. With regards to employment of affected persons, it is learnt that the contentious issue relates to what is categorised as “C” type affected persons. These were people who had lost their land practically and not their homestead land.

Various Interational journals( forbes,Hemscott,Abcmoney,Reuters UK) have reported that BHP Bilton is buying a stake in a mining unit Ashapura Minechem Ltd.The stake will be 51%. This provides a backdoor entry for BHP Bilton into Orissa. Earliar it tried toi bid in Sesa Goa. BUt that stake was taken by Vedanta group.

BHP Billiton Ltd./Plc. (BHP.AX: Quote, Profile , Research) (BLT.L: Quote, Profile , Research), the world’s biggest mining group, is in talks to buy a 51 percent stake in an Indian alumina project, the Business Standard newspaper said on Monday.Indian mining and mineral firm Ashapura Minechem Ltd. (ASHM.BO: Quote, Profile , Research) will hold the remaining 49 percent in the 25-billion-rupee ($614 million) project in the eastern state of Orissa, the paper said, quoting unnamed sources.The two partners will invest 8 billion rupees towards equity and the remaining 17 billion will be raised through debt, it said.The spokesman for Mumbai-based Ashapura could not immediately comment on the report.In May, an official at Ashapura had said it was bidding for a bauxite mining lease in Orissa.

The Business Standard reported quoted Managing Director Chetan Shah as saying that it would take three months for government approval, and the project would be commissioned by next year.

But he declined to identify a likely partner, the paper said.

Ashapura has a tie-up with China’s Qingtongxia Aluminium Group for a 25-billion-rupee alumina refinery project in the western state of Gujarat. Construction work is scheduled to start in November. ($1 = 40.7 rupees)

There are currently no plans for a Aluminium plant at this stage though.

New Indian express reports that the Orissa krushak sangha demands that Orissa R&R policy is made as an legislation.

I welcome this as a good step. Also, this signifies that the orissa krsuhak sangha is supporting this policy. This is an encouraging sign. Possibly an indication of a partnership between farmers and industries.

Orissa Krushak Mahasangha has urged State Government to make rehabilitation and resettlement (R&R) policy a law. Citing instance of Mahanadi Coalfields which is accused of not implementing R&R measures causing strong resentment among the oustees, chairman of the farmer outfit Bibhudendu Pratap Das said once it is made a legislation, no company would be able to violate it.

Violators would attract penal provision, he added.

He also demanded that special courts should be set up for such cases.

Dharitri has a nice overview (page1, page2, page3) of the status of the various ports that Orissa plans to have. Following are some highlights from that report.

• Aditya Birla group S.L. Mining has expressed interest in developing the Chudamani port in Bhadrakh district. IIT Madras has done the technical evaluation of this project. Page 1 of the article has more details.
• Navajuga engineering of Hyderabad has proposed developing Astaranga port in Puri district. Page 1 of the article has more details.
• Puri ports limited has proposed developing the Baliharchandi port in Puri district. Page 1 of the article has more details.
• Good earth maritime of Madras has proposed developing the port in Bahuda muhana of Ganjam district. Page 1 of the article has more details.
• Gopalpur: Being developed by Orissa Stevedores. Page 2 of the article has more details.
• Dhamara:TISCO and L & T are devloping this port. Page 2 of the article has more details.
• Jatadhari: Being developed by POSCO. Page 3 of the article has more details.
• Paradip: Existing major port. We discussed its expansion plans recently.
• Palur, Ganjam: no proposals yet
• Barunei, Kendarpara: no proposals yet
• Inchudi, Balasore: no proposals yet
• Chandipur, Balasore: no proposals yet
• Bahabalpur, Balasore: no proposals yet

The article says that the Balasore district ports face problems from the Dept. of Defense because of the missile testing range nearby. The article does not mention the following plan:

• Creative ports, Chennai plans to develop the Kirtania port on the mouth of Subarnarekha in Balasore district.

Zee news reports that Arcelor-Mittal’s project in Orissa on schedule. Following is an excerpt from that report.

Announcing that the company has already acquired space at the fortune tower for opening its Orissa office, the CEO said that the Dasturco would prepare reports for its steel mill, rehabilitation colony and an environment management plan (EMP).

“Since the Orissa government has been pressing for an EMP, we have also asked the Dasturco to look into this aspect”, Mishra said, adding that the company would proceed further after getting the reports.

Sources said the company expected the DPR from Dasturco within the next 12-18 months. Mittal Steel had signed an MoU with the Orissa government in December 2006.

The world’s number one steel company plans to set up its 12-mtpa steel unit in two phases. It has sought 8,000 acre of land in Keonjhar district to house its steel plant, a 7,500 mw captive power plant and a township.

IBM does a lot of business with SMBs (small and medium businesses) in India. Thus it plans to expand its operation across India. Various news reports mention that it has plans to expand to 14 tier two cities. It has already started at Coimbatore and Goa, will start with Lucknow, and then follow it up with Bhopal, Nashik, Nagpur, Surat, Bhubaneswar, Jamshedpur, Jaipur, Ludhiana, Dehradun, Vizag and Madurai.

Business standard reports that the Orissa government is after Accenture and other big IT consulting companies. There is nothing concerete here except that its a policy decisions to go after these biggies with an attractive package. Following are excerpts from that report.

The Orissa government is rolling out the red carpet to get the management consulting, technology services and outsourcing firm Accenture to set up facilities in the state. …

Orissa IT minister Surya Narayan Patro said, “We have initiated discussions with Accenture.”

A top official of the Orissa IT department said, “The government would leave no stone unturned in bringing in big companies like IBM, Cognizant and Accenture to the state. Discussion were on and the government would contact Accenture.”

The Orissa government was working out a package offering excellent infrastructure to companies keen to invest in the state.

Accenture currently had 1.5 lakh employees in 49 countries with global revenues of around $18 billion, and was one of the largest computer services and software companies.

India was an integral part of Accenture’s global delivery centre (GDC) and its second largest country of operation, with branches at Bangalore, Chennai, Hyderabad, Mumbai and New Delhi employing 15,000 professionals in India.

The Orissa government recently allotted 1074 acres of prime land for three IT zones labelled Infocity 1 to 3. While Infocity-1 was functional, Infocity-2 and Infocity-3 were
under planning and development. TCS, Infosys and Satyam had units here while Wipro, MindTree and Hexaware were expected to decide on facilities in Bhubaneswar soon and Genpact had committed to invest at Infocity-1.

Orissa expected software exports to cross Rs 1000 crore from the 2006-07 export figure of Rs 734 crore.

IT small and medium enterprises (ITSMEs) in Orissa were working on a plan to take up software exports. Currently there were about 135 IT firms registered with the Software Technology Park of India (STPI) in Orissa.

Times of India reports that Arcelor-Mittal has hired M. N. Dastur to prepare the detailed project report of its proposed plant in Patna area of the Keonjhar district. Following are some excerpts of that article.

The world’s largest steelmaker Arcelor-Mittal has roped in M N Dastur and Company (P) Ltd (Dasturco) to prepare the detailed project report (DPR) for its proposed Rs 40,000 crore steel facility in Orissa’s Keonjhar district. …

The Arcelor-Mittal group, which signed an MoU with the state government for a greenfield steel plant in December, 2006, plans to have its DPR in place within the next 12 to 18 months, sources said.

Dasturco, a five-decade old leading engineering consultancy and design company, has well-known expertise in project planning and appraisal, economic evaluation, design and detailed engineering, project management, supervision of construction and erection and et al and this helped the company bag the deal, sources added.

Following is a roundup on HRD related postings at orissawatch.org.

• Foundation For Excellence (FFE) gave 264 scholarships to students from Orissa
• Orissa engineering colleges in Outlook India ranking
• NISER deadline for submitting application form is extended till June 15 2007
• Chennai B-school in Bhubaneswar and Plan for Insurance University in BBSR
• Specialized government management institutions of Orissa
• Branch changes allowed after first year at NIT Rourkela
• Status of private Medical Colleges in the State
• M.Tech and M.Arch programs in Orissa
• KIIT has approval for 100 Medical (MBBS) and 100 Dentistry (BDS) seats.
• Institutions with Nontraditional programs – a dated list
• Biju Patnaik Film and TV institute advertises for admission into its programs
• Apparently Orissa students are doing well in medical entrance exams
• Tathya: Please no politics over IIT
• Pursuing M. Ed in Orissa
• Ranking of Engineering Colleges in Orissa based on student preferences
• Nursing Schools catch on in Orissa
• TCS recruits 1100 students from Orissa engineering colleges

Livemint was mentioning that POSCO is renowned to be socially a very conscious Industrial company. Following are some excerpts:

A mobile health van goes to some villages at least one day a week, young women have trained as beauticians, doctors have flown in from Korea to fix the cleft palates of local children, scholarships for study have been awarded and street lights have been erected.

On an international level, corporate social responsibility (CSR) has been a major focus for Posco, the only major steel company listed in the Dow Jones Sustainability Indexes, which track the performance of leading companies deemed to operate in a socially responsible manner. Its efforts in India coincide with increased attention to the subject.

Perhaps, this could be a pointer for MNCs who want to invest in backward states like Orissa.

I came across several leaflets and brochures in POSCO-INDIA’s Press room pages. Following is the brochure that highlights the NCAER study that I mentioned earlier.

Business standard reports that POSCO is considering offering shares as part of its R & R. Following are some excerpts from that report.

Meanwhile, Posco is considering share allotment to landholders as an option for its Rs 52,000 crore project in Orissa. The company, which requires nearly 4,000 acres of land for a 12-million-tonne plant, says it will take a call on the issue by the end of this month.

“No doubt this is an option but we will decide after we know what people want,” a Posco spokesperson said. To understand land-holders’ demands, the company has asked Xavier Institute of Management, Bhubaneshwar, to carry out a socio-economic survey.

Of the 4,004 acres of land Posco requires, 3,566 acres is government land and 438 acres under private ownership.

The private land covers three gram panchayats of Gada Kujanga, Muagaon and Dhinkia. Dhinkia’s is the largest tract covering 200 acres. The area has a significant peasant population with communist affiliation.

The spokesperson added that any share issue would have to be over and above the compensation. “Otherwise, people will not like it,” he said.

Both Posco and Videocon will also offer one job per displaced family.

The Orissa rehabilitation and resettlement (R&R) policy has a provision for convertible preference shares to be issued to displaced people. The value of the shares could be up to 50 per cent of the one-time cash assistance.

Last week transportation of coal from Mahanadi Coalfields Limited came to a grinding halt and NALCO and NTPC Talcher that depend on that coal got into a critical situation. Following are excerpts from a Newkerala news report that mentions why MCL got into that situation.

Sources said the land losers of Zillinda, Kandhal and Solod affected by Ananta and Bhubaneswari mines stopped Ananata, Jagananath and Bhubaneswari open cast mines and close down the concerned project officers’ offices since yesterday demanding the promised job to the oustees by Mahanadi Coalfield Limited (MCL).

The villagers alleged that MCL authorities did not meet their commitments to provide 80 jobs to them till date forcing them to go for strike.

Similarly the land oustees of Kandhal marched to Lingaraj mine linked to NTPC-kaniha yesterday and stopped the output protesting the non-availability of employment to them as promised by Lingaraj authorities.

Coal transportation from Hngula and Balaram mines had been hit for the last four days due to the road blockade by Soloda villagers demanding jobs.

Angul Collector Girish S N said the authorities were monitoring the situation and senior officials dealing with land acquisition and rehabilitation had been rushed to troubled areas to negotiate with the agitating villagers.

Kalinga Times reported on a letter that CM Naveen Patnaik wrote to the PM on this issue. Following are some excerpts:

In a letter to Singh on Monday, the Chief Minister said that MCL should continue supplying coal to National Aluminium Company (NALCO) and National Thermal Power Corporation (NTPC) to help these industries continue uninterrupted power generation.

Blaming the MCL authorities for not extending the rehabilitation and resettlement benefits to the people affected by coal mining, Patnaik said the public sector undertaking should go as per the State’s R&R policy as the Centre was yet to adopt a new policy in this regard.

Extending R&R benefits to the families affected by the operations of MCL will go a long way in improving law and order situation in the region, Patnaik said.

In recent months there have been reports regarding how some R & R issues with respect to Hirakud dam oustees and SAIL Rourkela still remains unresolved after several decades. It seems that many public sector companies with their central government connections are arrogant and have not done R & R properly. As a result people do not trust R & R promises made by anyone (private or public companies) and as a result various projects that could help Orissa get out of the bottom, are getting inordinately delayed.

I came across a 1-page note someone from POSCO-India gave me when I was visiting Bhubaneswar in December 2006-Jan 2007. The 1-page note summarizes a study done by NCAER. The study has also been reported in News media such as Hindu Businessline. (POSCO-India in its web page has additional links.) We will give some excerpts from the Hindu Businessline report.

The 1-page note: POSCO-India’s rs 52,810 Cr investment by 2016 will stimulate Orissa Economy.

• Economic Benefit:
  • Generate Rs 29,760 crores additional annual gross output for Orissa including Rs 12,610 Crore of POSCO-India’s direct gross output.
  • Create excess annual value addition of Rs. 12,100 crores for Orissa which equals 19% of Orissa’s state GDP in 2005-06 (equals 11.5% in 2016-17)
• Employment:
  • Job creation of 870,000 man years, absorbs 88% of state unemployment backlog (i.e., decrease in backlog of employment from 9.9 lakhs in 2005-06 to 1.2 lakhs).
  • 18,000 man years of direct employment in POSCO-India.
• Tax Contribution:
  • POSCO-India annual tax contribution (Rs 2,620 Crores) would be appx. 17.6% of total tax revenue of Govt. of Orissa in 2016-17.
  • POSCO-India SEZ would contribute Rs 174,970 crore tax revenue in next 35 years.
    • Rs 77,870 crores would be to Govt. of Orissa and Rs 97,100 crores to Govt. of India.
    • The differences of tax between SEZ and DTA status is less than 8% for Govt. of Orissa and 5% for Govt. of India.
• Comparison with current Orissa Economy:
  • Orissa in 2003-04:
    • Gross Output: 111,378 crores
    • State GDP: 53,830 crores
    • Employment: 143 lakhs (2001 census)
    • Tax: 8170 crores (2005-06)
  • POSCO-India’s impact:
    • Gross Output: 29,760 crores
    • State GDP: 12,100 crores
    • Employment: 8.7 lakhs
    • Tax: 2620 crores

We now give some excerpts from the Hindu Business line article of January 2007 which partly explains how some of the above numbers were calculated. That article was written by R. Venkatesan who works for NCAER, but the article was his personal view.

The NCAER study broadly used the ADB/World Bank methodology on the social cost-benefit with minor adjustments for the local parameters. Econometric models were used to project border prices for the useful life of the project. The project’s impact from the State economy perspective — in terms of the impact on the State GDP (output multiplier effects) and employment opportunities created within the State (employment multiplier effects) was also assessed.

The output multiplier for iron ore was found to be 1.4 compared to 2.36 for steel. In other words, every Rs 1 lakh worth of output in the iron ore sector would result in Rs 1.4 lakh of output (including the Rs 1 lakh output of iron ore) compared to Rs 2.36 lakh for every Rs 1 lakh output of steel. The employment multipliers for iron ore and steel work out to 0.35 and 0.69 man-years respectively. Therefore, in terms of both output and employment, steel has a larger impact.

These multipliers imply that the Posco project would create an additional employment of 50,000 person years annually for the next 30 years vis-à-vis 870,000 person years in the steel project alternative. In terms of value addition, the iron ore and steel project alternatives would contribute 1.3 per cent and 11.5 per cent to Orissa’s State Gross Domestic Product (or SGDP) by 2016-17 respectively.

An important part of the study was the Least Cost Analysis of technology options in the steel-making, the Finex process that Posco purports to bring and the traditional blast-furnace technology. The Average Incremental Economic Cost was used as the yardstick; this was followed by computing the economic IRR (internal rate of return)
to examine whether the project was economically worthwhile from the national economy point of view.

The EIRR for the Orissa project works out to 16.6 per cent for base case and even in the worst case scenario, the EIRR at 13.9 per cent would remain above the hurdle rate of 12 per cent. The economic impact of the project was estimated at $2.5 billion at the test discount rate of 12 per cent.

The significant feature of the study was the estimation of depletion premium or the opportunity cost for depleteable and non-renewable resource iron ore for reasons cited below:

India’s high-grade ore (+ 65 per cent Fe content — Haematite) reserves, proven and probable, amount to only 0.58 billion tonnes. And even if we were to factor in indicative and inferred reserves (probable/feasible), the total reserves (proven and possibly future potential) would be only 0.92 billion tonnes.

India’s medium-grade ore (+62 per cent Fe to 65 per cent Fe — Haematite) reserves, proven and probable, is only 1.3 billion tonnes. Here too, if we factor in indicative and inferred (probable/feasible and pre-feasibility estimated) reserves, the total reserves (proven and possibly future potential) will be only 2.8 billion tonnes.

Policy Implications

Orissa stands to gain significantly if instead of exporting iron ore it processes it to steel within the State, in terms of both employment generation (17 times), and GDP impact (9 times).

India’s high and medium grade iron ore reserves may not last more than 19 years even if exports of these grades are frozen at the current level or if the targets set out in the draft steel policy are to be met. The economic analysis considered the depletion premium for high and medium grade iron ore. This is the opportunity cost to the national economy of using the depletable resource, which is the average incremental cost of depletion premiums computed year-wise.

Any exporter of iron ore of medium and high grades from the State needs to pay a depletion premium of $27 per tonne. Even this would be a sub-optimal policy from the State’s viewpoint if it can process the medium and high grade ore to steel. No such depletion premium has been applied for coking coal as its price did not exhibit any
trend before the recent steep price hike.

For the eastern States seeking to raise the mineral sector’s share in their GDP, it may be a good idea to set up processing facilities. It would not be advisable to allocate iron ore mines through open bids or accept increased royalty payments, even accounting for the depletion premium, compared to the option of processing iron ore to steel. Future cost-competitiveness and logistical advantage imply that iron ore-rich States can compete with existing over-capacities in the US, Europe and Japan even after factoring in the capital charges for new investments.

Export of iron ore needs to be restricted to grades other than medium and high-grade ore categories; for instance, export of beneficiated ore from Goa using inland waterways logistics advantages could be encouraged. Allowing exports of high grade ore would facilitate export of steel from existing over-capacities in the US, Europe and Japan to East Asia at the expense of future steel exports from new Indian steel capacities which are likely to enjoy cost-competitiveness over existing over-capacities elsewhere.

I am not qualified to judge the above analysis. I would appreciate any comments, analysis, criticisms etc. on the above.

Today’s Business Standard reports that all future MOUs signed by the Orissa government will have more conditions related to value addition, employment infrastructure and ancillary development. Following are some excerpts from that article.

The Orissa government has decided to incorporate new conditions in all MoUs to be signed henceforth with investors proposing to set up projects in the state, to compel them deliver more on value addition, employment, infrastructure and ancillary development front.

At a meeting today, L&T officials made a presentation regarding plans on investment in Orissa and the benefits to flow to the state. According to sources, the company has agreed to upgrade the existing plant of L&T plant located at Kanspal near Rourkela in Sundergarh districts where high end engineering products will be manufactured.
Similarly, it has been asked to set up a technical institution closer to the refinery site and develop a greenfield plant. The company will also be involved in the infrastructure development.

For this, the company has been asked to participate in the Special Purpose Vehicle (SPV) for Therubali-Gunupur Rail Link. Further, in order to promote employment in the state the company will be asked to develop downstream industries, he added. It may be noted, the details of the MOU conditions will be worked out within next 2-3
days before formal signing of the MOU.
…
This changed attitude of the government to extract certain commitments from the industry in MoUs to safeguard the state’s interest is likely to be reflected in the signing of the Memorandum of Understanding (MOU) for the L&T-Dubal project, a joint venture between L & T of India and Dubal Aluminium of Dubai.

This is a good first step; especially the part regarding establishment of “technical institute.” However, it is not clear what kind of technical institute is referred to: an ITI, a polytechnic, or a degree engineering college. The government should insist on all three. As a reference point Jharkhand has convinced Central Coalfields to set up an engineering college in Jharkhand, and Bokaro Steel Plant to set up an engineering college and a medical college in Jharkhand.

Orissa must follow Jharkhand’s example. It should not only require a medical college and an engineering institution (with degree college, polytechnic and many ITIs as part of it) from the new companies but also require it from existing companies; both public and private ones. The existing companies which do not agree to this should be blacklisted and not given any preferred treatment for various things such as permissions, renewals, expansions etc. To discourage them from delaying, an escalation formula should be worked out so that the more the company delays the more it has to put in later.