Iron and Steal: The POSCO-India Story (Executive Summary)

POSCO-India’s project to build a 12 million tonnes per year steel plant in Orissa, with a captive port and iron ore mines, is widely celebrated as the single largest infusion of Foreign Direct Investment (FDI) since the Indian economy liberalized in 1991.  Estimated at USD $12 billion (Rs.52,000 crores), the project was claimed by Orissa government to “bring prosperity and well-being to its people” by embarking on major industrialization based upon exploitation of its natural resources.  However, this project has faced strong resistance from a vigorous people’s movement on the ground, comprised of villagers apprehensive of losing lands and livelihoods. Consequently, five years after the project was launched, POSCO has yet to acquire a single acre of land, and has been embroiled in legal, logistical and procedural quagmires.

This report presents a comprehensive analysis of the claims advanced by the State and Central governments and the POSCO company itself, of the various benefits that would accrue to “the people”, and the total addition to the state economy due to this project. Going beyond the standard narratives of revenues and cash flow, this report investigates the actual impacts of the POSCO project on the residents of Jagatsinghpur, Keonjhar and Sundergarh, where the steel plant, the port, and the mines will be set up—the same “people” in whose name the POSCO project has been so vigorously pushed by the government of Orissa.  The report also looks at the pivotal roles played by the various institutions of the government in justifying and implementing this project, many times in an undemocratic, illegal and coercive manner. Finally, this report offers a critical evaluation of the only cost-benefit analysis of the POSCO project done so far, conducted by the National Council for Applied Economic Research (NCAER) in 2007, and highlights the fundamental flaws in its methodology and its conclusions. Conclusions from the three substantive chapters of the report are summarized below:

1. Subversion of State’s authority and sovereignty for POSCO’s benefits:  All three organs of the Indian state—the executive, judiciary and legislature—have been severely compromised in order to facilitate a swift execution of the POSCO project at the least cost to the company. Various laws and procedures been openly flouted, illegal clearances awarded, and deliberate attempts have been made to underplay the costs and overstate the benefits of the project.

  • The Forest Rights Act (FRA) has been openly and deliberately flouted in the 3096 acres of forest land required for the POSCO steel plant.  The administration not only refused to recognize the rights of thousands of families in the project area under the Act, it also deliberately withheld information on the palli sabha resolutions passed by the villages opposing the POSCO project. In spite of two committees appointed by the Ministry of Environment and Forests verifying these flagrant violations, the MoEF has yet to withdraw its clearance to the project.
  • Local popular and democratic resistance to the POSCO project has faced brutal repression from the state’s security apparatus, wherein thousands of resisters have been severely beaten up at protest rallies, several have been severely injured in police shootouts, and one activist even lost his life. Thousands of villagers participating in peaceful and democratic dissent have outstanding warrants and are living in constant fear of imminent arrest, and dozens of activists and leaders have been imprisoned for months on end.
  • The government has offered misleading and false projections for tax revenues realized from the POSCO project.  Given that the POSCO steel plant and captive port would be in Special Economic Zones and benefit from many tax concessions, the tax revenues projected by the Orissa government (based on the NCAER report) are a gross exaggeration and are patently wrong. For instance, the numbers seem to imply that the corporate tax that POSCO would owe the state would be higher if it has SEZ status, than if it doesn’t!
  • The Orissa government’s decision to allocate 600 million tons of the highest grade iron ore available in India buried in the hills of Khandadhar hills to POSCO, taking precedence over more than 200 domestic and international applicants, is an unprecedented handout to the company.  The extraction of iron ore alone allows POSCO to profit to the tune of Rs. 6,500 crores per year (about 1.5 billion U.S. dollars) for 30 years, ensuring that its entire investment of 12 billion U.S. dollars in this project is recouped within the first 8 years.

2. Project affected villages face widespread impoverishment and loss of livelihoods:  We conducted fresh preliminary investigation of the current baseline economy at the two project sites – the plant/port and the mining sites.  Our data shows that:

  • There is a thriving agricultural economy in the three gram panchayats at the plant/port site, centered on but not limited to betel vine cultivation. Betel vine cultivation is feasible on very small plots of land and provides a steady, reasonable income both to the owner-cultivators and to wage labourers. This economy will be completely destroyed by the project, displacing an estimated 22,000 people.
  • The Resettlement and Rehabilitation package on offer in the steel plant area is not reasonable compensation for the losses that will be suffered by the people.  For instance, the average loss of income for a cultivator is at an average Rs. 40,000 per year per decimal (100 decimals = 1 acre) of land under betel vine cultivation (minimum reported income per decimal= Rs.33,000 and maximum reported per decimal= Rs.50,000) under betel vine cultivation, but the latest compensation on offer is a one-time payment of Rs. 11,500 per decimal. The total loss experienced by a betel vine farmer per decimal over a 30 year time period would be in the range of Rs. 12 lakhs thus making the current one time compensation package on offer less than 1% of their cumulative earning potential.
  • An additional estimated 20,000 to 25,000 people from approximately 30 neighboring gram panchayats would suffer loss of their livelihood as fishermen because of the proposed POSCO port. These people are not even referred to in any R&R plan.
  • In the proposed POSCO mining areas, residents of approximately 32 villages in Keonjhar and 84 villages in Sundergerh, mostly Scheduled Tribes, are dependent on surrounding forests for minor forest produce for consumption and sale. The Forest Rights Act has not been implemented and no R&R has been announced for these areas.
  • The employment potential of the project has been grossly exaggerated by POSCO and Orissa government, based on an inaccurate study by NCAER. A careful breakdown of the much-touted “8.7 lakh jobs for 30 years” claimed by NCAER study shows only 7000 direct jobs and a maximum of 17,000 direct and indirect jobs in the next 5-10 years. This represents a maximum of 1.7% reduction in current unemployment levels as against the exaggerated claims by POSCO who have used the figure of 8.7 lakh jobs to suggest that the project will almost entirely wipe out unemployment in Orissa! Further, due to issues of skill mobility and mechanization, most of these jobs will not go to the project-affected population.

3.Environmental Clearances based on flawed processes and incomplete data:  The Environmental Impact Assessment (EIA) and Environmental clearance granting processes were inherently flawed and biased towards the project, leading to dangerous oversights of many of the critical threats to the environment:

  • Some of the environmental threats completely overlooked by the EIA are the possible adverse impact on the viability of the thriving Paradeep port, an impending water crisis in the Mahanadi delta and Khandadhar mining areas, and severe negative impacts on already threatened wildlife species such as Olive Ridley turtles, dolphins, Royal Bengal tigers and elephants.  The impact of a depleted forest cover on the forest dwelling Adivasis of the Khandadhar mining area and the disastrous public health effects of mining have also been completely overlooked.
  • There have been several major procedural shortcomings in the way the EIA was conducted. The project was treated as a series of disconnected parts so that its actual cumulative environmental impact has been obscured. Rapid EIAs were performed instead of Comprehensive EIAs in violation of the EIA Notification, 2006, which requires a comprehensive EIA, as does global best practice. The public hearing process was vitiated by holding the hearing in area far from the affected villages as well as by the by heavy deployment of police and the presence of POSCO officials on the dais.
  • The Coastal Regulation Zone Notification of 1991, which protects fish breeding grounds, has been violated since the area designated for POSCO’s captive port is classified as an “ecologically sensitive area.”

Based on the above findings we are forced to conclude that the POSCO project, as it currently stands, is poorly conceptualized and economically unviable.  If allowed to proceed, the project will result in widespread impoverishment of a large number of people and irreversible degradation of the environment, besides setting a dangerous precedent of complete state capitulation for a private company’s profit.

  • The project’s benefits have been grossly exaggerated and its costs minimized.  The state has sought to justify the project by relying on a completely inaccurate study conducted by the NCAER, where the benefits of employment and tax revenues have been highly overstated.  On the other hand, the profitability of the project to the state economy is based on incomplete categorization of project costs.  The real costs borne by real people—the loss of livelihoods, homes, forests, rivers – figure nowhere in the cost-benefit analysis.  This methodology is in violation of the Asian Development Bank’s guidelines, which the NCAER study purports to follow.
  • This project will only lead to a deepening of the gross inequities of wealth distribution in our society.  Most of the costs of this project, in terms of resources of land, water, forests and minerals, will be borne by the economically weaker segments of society—the Adivasis, the farmers, the fish workers and the small-scale betel leaf traders.  On the other hands, the benefits of this project will largely accrue to the multinational corporate houses investing in POSCO, the mineral and metal traders and technically skilled labor force.
  • The procedural violations at every stage amount to the clear undermining of democracy. To restore faith in the country’s democratic traditions, it is important that such violations not be allowed to happen in other projects and all aspects of error and violation be corrected in this case.


Iron and Steal: The POSCO-India Story (Executive Summary) — 5 Comments

  1. The most important question re: land acquisition for steel plants and other projects is the actual land needed and how that amount is decided. I have not read any good accounts on this, do we have research data on this? In Orissa, the govt appointed M.N. Dastur to do the calculations, but Dastur is also employed by Arcelor and others to do their DPRs!!! This itself is totally unethical and illegal. ACCOUNTABILITY is not for themselves, I guess. Industry says it requires minimum 500 acres for a 1-1.5 MT steel plant. Most of the acquisitions are based on this, it seems. 2 questions follow: 1. How is this figure being arrived at? 2. is the land-requirement/production relationship purely arithmetical? that is, why is it that increasing production from
    1 MT to x MT imply exactly the same proportion of increase in land? (Someone please put it in mathematical language, it’s been many years.) Their must be a whole set of things — offices, residential quarters, roads, plant, etc. — which would be building on what is already there for 1 MT. Please help, anyone?

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