India approves $12 bn S. Korean steel plant

NEW DELHI: India on Monday gave approval to South Korea's POSCO to build a giant $12 billion steel plant, in the country's biggest foreign investment deal since the launch of market reforms in 1991.

The POSCO deal is a test case for foreign investors eager to enter the fast-growing Asian economy, but it also puts the government on collision course with villagers as farmland is cleared to make way for the plant.

Environment minister Jairam Ramesh gave his conditional clearance for the 12-million-tonne capacity plant, initially agreed in 2005, to be built in the eastern state of Orissa.

"Projects such as that of POSCO have considerable economic, technological and strategic significance for the country," Ramesh said, while stressing that "laws on environment and on forests must be implemented seriously".

A spokesman for POSCO, South Korea's biggest steelmaker, told AFP in Seoul that the company welcomed the Indian government's approval and it would now go ahead with further land purchases.

But Ramesh, who has earned a reputation as a green crusader for blocking investment projects that threaten the environment, warned that his conditions imposed on POSCO would be "closely monitored".

Among the 28 conditions are restrictions on air emissions, and rules on water sustainability and the amount of green cover around the plant.

Approval for a port to be built by POSCO for the plant was also subject to 32 conditions, including a ban on construction in high erosion zones.

A government panel had earlier found "many serious lapses and illegalities" in assessments of the plant's environmental impact and "serious violations" in the public hearing process.

POSCO's plant was among a number of big-ticket industrial projects that have run into difficulty over environmental and other issues.

Industrialisation has long been championed by economists as a way to create double-digit economic growth in India and pull tens of millions of people out of poverty.

But across the country, acquiring land for factories has frequently created battlegrounds.

Giant steelmaker ArcelorMittal has also found itself unable to acquire land for five years for a proposed plant in eastern India.

Ramesh's push to make sure projects meet environmental standards has pitted him against big business and cabinet colleagues, including steel minister Virbhadra Singh, who told him to be "pragmatic, not dogmatic".

Ramesh made headlines last year by blocking plans by British resource giant Vedanta to mine bauxite in eastern India and has put other major projects on hold, including a new hill station in western India.

The POSCO approval comes after India saw foreign direct investment decline sharply last year. The country's central bank blamed that in part on "environment sensitive policies" that affected investor sentiment.

For 2010, FDI fell 32 percent to 24 billion dollars at the same time as places such as Singapore grabbed 122 percent more foreign investment at $37 billion and China drew 6.3 percent more at $100 billion.

In mid-January meanwhile, POSCO reported a sharp fall in fourth-quarter net profit to 525.4 billion won ($469 million), blaming the higher cost of raw materials.