POSCO Proposed Project in Orissa – Case Study & Analysis by Group D

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  POSCO Proposed Project in Orissa – Case Study & Analysis Disclaimer ã ã ã ã While studying & analysing the case supplementary reading materials have been referred to (source: the Internet) & also quoted in this text. Figures, images & other exhibits used in answering the questions of the case have been sourced from the internet. The name of the state of Orissa has been changed to Odisha. However, for the sake of consistency & in line with the case the state has been referred to as Orissa throug
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  Subject:  Sustainable Business and Entrepreneurship Submittedby:  (1) Abu Khan, (2) Anup Gupta (3) Khangenbam Premita,(4) Thempi Khongsai16 Sep 2011Page 1 of  8 POSCO Proposed Project in Orissa –Case Study & Analysis Disclaimer ã While studying & analysing the case supplementary reading materials have been referred to (source: theInternet) & also quoted in this text. ã Figures, images & other exhibits used in answering the questions of the case have been sourced from theinternet. ã  The name of the state of Orissa has been changed to Odisha. However, for the sake of consistency & inline with the case the state has been referred to as Orissa throughout in the answers. ã All dates & timelines mentioned in the answers are with reference to the time frame of the case. 1.   What are the socio-economic and environmental costs of proposedPOSCO Projects? Before proceeding to identify the socio-economic and environmental costs of proposed POSCOProjects lets quickly look into the broad aspects of the project first from the state’s, the company’s & thesteel industry’s perspectives in general:     The Pohang Iron and Steel Company, or POSCO based in Pohang, South Korea, is the world's fourth-largest steel maker by market value and Asia’s most profitable steelmaker.    Korea is the world leader in shipbuilding & gradually becoming a leading automobile manufacturerin the world. Both these industries depend heavily on steel & this is where the role & importance of POSCO for supplying steel becomes paramount. POSCO has been seen as the bedrock of Korea'sindustrial development over the past 40 years.     The steel market, growing at an annual rate of more than 4%, just before the recent meltdown, hadbeen witnessing a global boom since the beginning of this decade. This was what enticed POSCO tothis eastern state to lead the revolution apart from the global race for cheap labour and rawmaterials (iron ore and coal).    National and multinational corporations have been making a beeline to resource-rich developingcountries to set up mega integrated steel projects and capture mineral resources (like iron ore andcoal).     The POSCO steel project in Orissa is one of many coming up in the Indian state of Orissa, which isgoing through a ‘steel revolution’ of sorts.    Over the past five years, the Orissa state government has signed more than 40 MoUs 1 (worthRs.1,60,132 crores with iron and steel companies, both domestic and foreign, mortgaging the 20billion tonnes of iron ore reserves that it’s supposed to be sitting on.    POSCO has managed to grab a big chunk of these iron ore reserves – nearly 400 million tonnes of high grade iron ore deposits - which it expects to exploit over the next 30 years. Under theagreement, POSCO plans to invest US$12 billion.    POSCO’s offer was rejected by Brazil earlier on the grounds that the company was not ready to pick up ore at market prices. Even investor friendly China had given the POSCO deal the thumbs down,refusing to open up its vital ore reserves to foreign investment. 1   A memorandum of understanding (MOU) is a document describing a bilateral or multilateral agreement between parties. Itexpresses a convergence of will between the parties, indicating an intended common line of action. It is often used in caseswhere parties either do not imply a legal commitment or in situations where the parties cannot create a legally enforceableagreement.    POSCO Proposed Project in Orissa ã   Case Study & Analysis Course: CEDNER DMSE11 Subject:  Sustainable Business and Entrepreneurship Submittedby:  (1) Abu Khan, (2) Anup Gupta (3) Khangenbam Premita,(4) Thempi Khongsai16 Sep 2011Page 2 of  8     The government of the state of Orissa is in favour of execution of this project in order to project animage of “favoured investment destination” of India, & also to appear at the top of all states in Indiain terms of the amount of FDI. Components of the POSCO Orissa project  The MoU essentially promises to facilitate the establishment of the project with the followingcomponents: Figure 1 - Project components  a.   12 Million Tonne Steel Plant and Captive 2 Port at Jagatsingpur district spread over an area of 4004 acres.b.   Captive Mining facilities for iron ore and coal in the areas allocated by Government of Orissa /Government of India (the “Mining Project”). Proposal for prospecting the Khandadhar mines(Sundergarh) for iron ore spread over an area of 13000 acres. 600 million tonnes of ore to besold at  `  24/- per tonne (Royalty Rate) along with permission for swapping of low grade ore byexporting and replacing with imported ore.c.   Infrastructure - road, rail and port infrastructure (the “Transportation Project”), including thededicated railway line from the mine-belt to Paradeepd.   Integrated township spread over an area of 2000 acres apart from 25 acres for office atBhubaneshwar.e.   Water supply infrastructure (the “Water Project”) - 12000 to 15000 crore liters from Jobrabarrage river Mahanadi.f.   Grant of ‘SEZ (Special Economic Zone)’ status for access to subsidies and tax holidays. The following page provides visual depiction of the project sites. 2 A captive project means facilities or services controlled by & reserved for a particular organisation. They are established by acompany to meet its own requirements.   The POSCOOrissa projectSteel Plant andCaptive Port   Captive Miningfacilities   Infrastructure -road, rail & port   Integratedtownship   Water supplyinfrastructure   Grant of ‘SEZ’status    POSCO Proposed Project in Orissa ã   Case Study & Analysis Course: CEDNER DMSE11 Subject:  Sustainable Business and Entrepreneurship Submittedby:  (1) Abu Khan, (2) Anup Gupta (3) Khangenbam Premita,(4) Thempi Khongsai16 Sep 2011Page 3 of  8 Figure 3 - Satellite view   Figure 2 - Site map    POSCO Proposed Project in Orissa ã   Case Study & Analysis Course: CEDNER DMSE11 Subject:  Sustainable Business and Entrepreneurship Submittedby:  (1) Abu Khan, (2) Anup Gupta (3) Khangenbam Premita,(4) Thempi Khongsai16 Sep 2011Page 4 of  8  The various socio-economic & environmental impacts of the proposed POSCO projects have beentabulated below: Element Issue Impact & Cost    S   O   C   I   O  -   E   C   O   N   O   M   I   C Swapping ore POSCO (henceforth referred to as the company) has been granted toswap the rich ore that has high alumina content (by exporting out of Orissa) with iron ore of low alumina content (by importing from Australia). This clause is kept in the MoU for blending to produce superior steel &conserve energy. This would cost the state’s superior natural mineralreserves to be replaced with less quality reserves & will impact theeconomy adversely in the long run Low royalty, grantingof SEZ status – fiscalloss    A major attraction for the private and foreign investors apart fromcheap labour is the favourable fiscal regime. By keeping the royaltyrates and taxes on mining and related industries low compared toother countries, India has tried to be a favoured destination forinvestment. For this project, the iron ore royalty is  `  24/tonne ascompared to the global rate of   `  1500/tonne. This is a huge directeconomic loss.    Even the tax and excise duties for these companies are 44% lowerthan China and Latin America, the other mineral producing states.    By giving SEZ status to the project the central government ispredicted to lose  `  89,000 crores and the state of Orissa an additional  `  22,000 crores in revenue over the next 30 years because of the SEZtax sops to POSCO. Unrest in the affectedpopulation –lawlessness & chaos  The archaic and draconian Land Acquisition Act 1894 continues toacquire private lands forcibly in the name of public purpose even forprivate mining activities. There is virtually no protection for those wholose their lands and livelihoods. The only legal and functionalmechanism by which public opinion is sought on industrial andmining projects is the ‘Environment Clearance Public Hearing’, whichhas been reduced to a stage managed charade by the main protagonists- company henchmen and corrupt officials of the local administrationand the Pollution Control Board. There has been huge number of massivescale protests against the POSCO project both in the affected sites inOrissa as well as at the national & international levels to thwart theintrusion of the company. Violence & corruption  The mineral-rich regions of Orissa are severely affected by the Naxalitemovement. The conflict situation in Orissa as well as the neighbouringmineral rich states has led to displacement of more than 80,000 peoplefrom their homes into refugee camps or migration to neighbouringstates. Several people have lost lives & many others crippled due to theseconflicts.
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