IN A season of scams, this is another. But the story of India’s largest foreign direct investment (FDI) is a scam of an entirely different scale; it cannot be measured only in currency. This scam is in the spin that makes private profit look like development; that makes FDI look like the only measure of a healthy economy, and gives global markets precedence over the domestic. This is the story of why the world’s third largest steel producer — Pohang Steel Corporation (POSCO) — really wants to invest in India. Of how this Rs. 52,000 crore project — India’s six largest steel plants combined — got clearance despite internal objections at every stage. Of how data has been concocted, facts misrepresented, vital information withheld, official minutes manipulated, site inspections conducted from a helicopter so India can have its largest FDI. Environmentalists believe Brazil and China have rejected POSCO’s proposal. Yet India has welcomed it with open arms.
The POSCO story is now at its most critical stage. How long POSCO’s welcome will last depends on crucial choices, on the politics of environment, development and diplomacy, on what India chooses to define as its priorities. It depends on psychology — the notion of power that comes from global linkages; of investment and development as holy cows, of any regulation as a leap backward, the myth that the magic letters — FDI — are the harbinger of prosperity.
TEHELKA has learnt that when the MoU was signed, the Odisha government thought it was trading revenue land. It was when Agriculture Minister Damodar Raut raised a question in the Assembly about the exact classification of it that Revenue Minister Manmohan Shyamal went back to the records. It was only then that they realised that 3,000 acres of the land promised to POSCO was forest land inhabited by 4,000 families.
In the past five years, the project has faced stiff opposition: large-scale protests, police firing, hundreds of injuries, a sarpanch with 42 cases against him, a farmer who cultivates with three bullets lodged in his body. In the past five years, it has become symptomatic of all the major faultlines of an investment-hungry India: a flawed mining policy, land acquisition woes, the question of ownership of natural resources, of public versus private, of fundamental rights and fair compensation, and of growth.
The turning point in the POSCO story is the report of a committee constituted by the Ministry of Environment and Forests (MoEF) to evaluate the project. The Meena Gupta Committee report, tabled in October, uncorked the lid off the problems spawned by the project. In a vindication of concerns raised by local residents, three members of the committee detailed gross violations of the Environment Protection Act, the Forest Rights Act and the Coastal Regulatory Zone (CRZ) notification. They recommended that all clearances be revoked.
There is no estimate of what India has to gain. The only cost-benefit analysis has been funded by the steel firm
Based on this report, the MoEF’s Forest Advisory Committee (FAC) has now recommended temporary withdrawal of POSCO’s forest clearance. Both the Environment Appraisal and the CRZ committees have asked POSCO for more data. Environment Minister Jairam Ramesh is expected to take a final decision after the sub-committees submit their reports.
There are various stakeholders in his final decision: the PMO, the steel ministry, the MEA, the Congress, the Odisha government, the BJD, the CPI, forest officers, environmentalists, 52 families driven out of their villages after a deft divide-and-rule strategy and labelled as “pro-POSCO” even though they don’t all endorse the project, thousands of farmers and fishermen who stand to lose their lands and livelihoods.
If you followed the backroom machinations of how official committees have had to dillydally on their recommendations because of pressure from the PMO, of how the FAC had to meet three times to discuss the project — something it has never done for any other project — you know this will not be an easy move for Ramesh. In that sense, POSCO is symptomatic of a new India where it is becoming increasingly impossible to do not only the right thing, but also the legal thing about the environment.
IN GOBINDPUR village, Nakula Behra, 80, is rather confused. He has never thought of himself as poor. His eyes are wide with horror at the mention of poverty, at the thought of a multi-billion dollar Korean company needing to give him employment and save him from a cursed rural life. He is self-employed in what he considers a profitable business — betel and cashew cultivation. He is so successful that he employs 10 others. He sells fish, betel leaves, drumsticks and cashew. One betel leaf sells for 60 paisa, one drumstick for Re. 1. He has an LIC policy and makes a profit of Rs. 5,000 per month. The betel vine has given him enough to marry off three daughters.
“How can you call me poor?” he asks. “Until we have the betel vine, we are selfsufficient. We earn as much as a government servant would. How are we poor? We are living with dignity.” Electricity would be nice, he says, but the only power POSCO will produce will be for itself, to run its integrated steel plant.
Research by a group of US-based professors and engineers has estimated that the average farmer in the project-affected area earns Rs. 40,000 per decimal of land per year. POSCO is offering the displaced a one-time cash compensation of Rs. 11,500 per decimal. They estimate the total loss by a betel vine farmer per decimal over a 30-year period would be around Rs. 12 lakh, making the current compensation package on offer less than 1 percent of their cumulative earning potential.
Meanwhile, it is estimated the extraction of iron ore alone allows POSCO Rs. 6,500 crore per year for the next 30 years. This means POSCO will recover its initial investment of Rs. 52,000 crore after eight years. From then on, it is pure profit.
While the current land demarcated for POSCO has a thriving agrarian economy sustaining 22,000 people, there is alternative barren land available 5-7 km from the current site. POSCO has refused to consider it. Sources say it is because POSCO’s costs would go up by about Rs. 4,000 crore. The former site is abundant in natural sand — the essential raw material for construction. In the latter site, POSCO would have to bear additional costs for construction and transporting sand. The spin says otherwise but this is maybe India’s deadliest scam — unbridled private profit in the name of development.
That is why reading the Meena Gupta Committee report is like holding a mirror to a cracked face and asking uncomfortable questions. There are ideological and economic questions: How do we want to use our scare resources? How do we define ‘optimal’ allocation of resources? India is already among the top 10 countries in the world with highest foreign reserves. Is there any analysis of what net impact this FDI will have? Is it worth it? What if the environmental and social costs of the project outweigh the benefit?
Nearly 22,000 people displaced, another 20,000 fishermen with no access to the waters, nearly 3 lakh trees felled, waterfalls red with iron, entire fisheries disrupted, forests turned into concrete, coastlines eroded, vanishing beaches, elephants left with no migratory pattern, and the possibility of destroying the world’s largest nesting grounds for the endangered Olive Ridley turtles — how far are we willing to go? Who is bearing the costs and who is getting the benefits?
But the POSCO story is not only about the development verus environment debate. It is about something more rudimentary: about development versus law, about how many laws we are willing to subvert for the great Indian Dream.
To understand the horror, consider this: Since all clearances have been obtained piecemeal, that too for only the initial 4 million tonne (MT) plant, there has been no comprehensive appraisal of the combined environmental impact of the entire project. Though POSCO’s steel plant will have an integrated township, a railway line and a 86 km pipeline — POSCO has applied for clearance for only the plant itself.
Three years after it got environmental clearance no one actually knows exactly what impact the project will have on the region — on the coastal ecology, on the water availability, on the possibility of a large-scale natural disaster.
AN INDEPENDENT review of the Environment Impact Assessment (EIA) made by an American green law alliance notes: “The EIA fails to asses the impacts of a worse-case spill and direct POSCO to use double-hulled tankers,” as is mandatory by international guidelines. India and South Korea are members of the International Maritime Organisation. Yet no one has made it mandatory for POSCO to follow the rules.
An MoEF committee has itself noted that ‘marine ecological status’ was not covered in the environment assessment. It concludes that the “the methodology used by the agency which prepared the EIA for POSCO is woefully deficient.” The port was given environment clearance based on a rapid assessment made during the monsoon months — something that the EIA notification forbids.
In the five years since the project was proposed, the POSCO saga has become indicative of a much deeper malaise — that of the State giving up its responsibility as a regulator and acting as a private agent of corporate interests. In many ways, POSCO is symptomatic of the problems of India’s mining policy. The industry has seen unprecedented profits in recent years, with the price of iron ore going from Rs. 300 per tonne in 2002 to between Rs. 5,000-7,000 at present. The prices are expected to reach Rs. 10,000 next year.
World over, companies pay fair-market rates for the iron ore reserves they mine. India is one of the rare exceptions that has offered mining leases on a royalty basis. Until last year, it was 27 per tonne. This year, a revised policy has increased the royalty to 10 percent of the pre-shipping price. In June 2005, bypassing nearly 200 companies, including PSUs, who applied for access to the mines, the Odisha government signed an MoU with POSCO. India’s total iron ore reserves stand at 18 BT of which 4.5 BT are in Odisha. This is what the MoU allowed POSCO: 600 MT of the highest-grade iron ore available in India, an integrated 12 MT plant, a hydel plant, a railway line, a township, a pipeline that will supply water from Cuttack’s drinking water source, and most significantly, its own port — unprecedented in India so far.
THE MOU also allows access to another 400 MT of iron ore that POSCO can export for use in its South Korean plants. Of the 600 MT designated for the production of steel, the MoU allows POSCO to swap 30 percent of Odisha’s high-grade iron ore with a lower-grade quality from Brazil. posco says this will make better steel. However, research shows that the low phosphorous content in Odisha’s iron ore makes it far more profitable to sell.
The private port is of concern too. The Central government policy itself says that there can’t be two ports within 25 km. POSCO’s port is about 10 km from an existing major Paradip port. POSCO classifies it as a ‘minor’ port but the data shows its depth is actually greater than Paradip. The port is going to be constructed on sand dunes that had once protected surrounding villages from the super cyclone in 1991. Hundreds had died.
But POSCO says that Paradip port will not be able to bear the additional traffic. The acting chairman of Paradip Port has himself challenged this. Even Shipping Minister TR Baalu opposed the idea. When questioned, POSCO Senior General Manager Saroj Mahapatra said: “POSCO is known for operating port-based steel plants. It is our specialisation.”
“Before the MOU, I had raised several flags,” former Odisha minister Panchanan Kanungo told TEHELKA. He was the deputy when Chief Minister Naveen Patnaik held the finance portfolio. “I raised questions about why we need a new port, how we will supply adequate water for this when our own water resources are dwindling, and where are the mountains of ash going to be dumped since this is a fertile area. I did not get a reply to any of these queries.
“Earlier the swapping ratio was higher. About 40-60 percent was being contemplated. After objections, it was reduced to 30 percent. But nobody will be able to check how much of Odisha’s iron ore will be exported or swapped by posco,” he adds. This is because the MoU has allowed POSCO both a private port and SEZ status. The premises within an SEZ are “deemed foreign land”, allowing for a few token officials, but making it nearly impossible for the government to monitor on a daily basis. The SEZ also allows tax concessions and zero export duty. (This means POSCO can export much or all of the steel it will produce at cheaper rates.)
The MOU also allows POSCO to set up its plant in three phases, beginning with a 4 MT plant and expanding every three years. Everything POSCO has asked for — land, iron ore, water — is based on the projection of a 12 MT plant. But there is nothing that binds POSCO to it. In a shocking reply to a question in the Rajya Sabha, the Ministry of Steel admitted that it has “no guideline regarding implementation of large-scale steel projects”, and that the phase-wise expansion is decided “by the investors themselves based on commercial considerations”.
What this means is POSCO could continue mining the iron ore for a 12 MT plant without necessarily expanding to produce 12 MT of steel. It presents an uncomfortable question: What is POSCO’s objective? Is it Odisha’s development? Is it steel production? Or is it exporting iron ore at a time when prices are skyrocketing? All evidence points to the latter.
It is becoming increasingly evident that mining is not really directly proportional to the upliftment or development of a state. Government data shows the number of workers employed to produce 1 MT of iron ore dropped 32 percent from 2005 to 2009. Shockingly, even the official report on Regional Imbalances shows that Odisha’s top three mining areas have actually registered a ‘downward mobility’ in terms of development.
According to labour ministry data, jobs in the mining sector per 1 lakh of output fell from 0.03 percent in 2000 to 0.009 percent in 2006. In Keonjhar, one of the prime mining areas, labourers claim that life expectancy has declined by about 50 percent, many dying before the age of 40. The trend of increasing mechanisation in the mining sector suggests that employment generation is usually much lower than projected.
The irony of the POSCO story is that India may have little to gain from its largest FDI. That the only existing costbenefit analysis that measures what India has to gain has been funded by POSCO itself. That the project may have been justified not on solid empirical data but on the symbolism of a large FDI. Much of the Rs. 52,000 crore FDI will actually end up flowing out. POSCO’s biggest expenditure will be on machinery, which as Mahapatra admitted will be “globally sourced”.
The rationale for an FDI is usually access to better technology and global markets, explains Jayati Ghosh, leading economist and member of the National Knowledge Commission set up by the prime minister. “The reason you want an FDI is because you feel as an economy that you are getting something out of it,” she says. “It is not clear what we are getting out of this one. The argument that POSCO is bringing new technology is laughable. We don’t need it. One could purchase the technology separately. That is what POSCO itself did while growing into a steel giant. “I am not against industrialisation, but it makes more sense to process raw material here than export it. This is the first project where we have agreed to export raw iron ore because the South Koreans have insisted on it. I am against this kind of export. The POSCO project is an example of how we have completely lost imagination about the project of development,” she adds.
Still Odisha and POSCO have made tall promises: 8.7 lakh jobs, 11 percent addition to the state’s GDP, unemployment wiped out of Odisha, thousands of crores in tax revenue. Put the number through scrutiny and the horror, the malaise becomes evident. In 2005, the Odisha government said the revenue from POSCO would be Rs. 89,000 crore in taxes to the Centre and Rs.22,500 crore in revenue to the state government. But these figures include sales tax, excise tax, service tax and local tax, all of which SEZ developers are exempt from.
The government did not offer any revised calculations until the ncaer report of 2007. Quoting from the National Council of Applied Economic Research (NCAER) study — funded by POSCO — the government now claims it will get Rs. 17,4970 crore as tax revenue over 35 years, of which Odisha will get Rs. 77,870 crore. How the expected tax revenue jumped from Rs. 22,500 crore in 2005 to almost three times that amount in 2007, is a mystery.
POSCO will displace 22,000 people, fell 3 lakh trees, and could destroy the nesting grounds of the Olive Ridley turtles
“The government has offered misleading and false projections. 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!” says a study by a group of US-based business professors and engineers.
The study also shows that POSCO’s employment claims are exaggerated. “A careful breakdown of the much-touted 8.7 lakh man years for 30 years shows only a 1.7 percent reduction in current unemployment levels,” the report says.
That such an MoU was signed in the first place, that the Odisha government has been bending over backwards to ensure it is implemented (appointing a nodal officer, agreeing to facilitate clearances, bear the cost of any litigation, and even build police stations for POSCO if necessary) is a troubling indicator of the Great Indian Dream.
With $2.7 billion already invested in brands such as Hyundai, Samsung and LG, South Korea is the seventh largest investor in India. South Korean President Lee Myung-bak was the Chief Guest at this year’s Republic Day celebrations. Lee had hoped his visit would coincide with the commencement of the POSCO project. When it became clear the he would not be able to visit the project site due to a ‘minor’ people’s agitation, Odisha CM Patnaik flew to New Delhi to provide the necessary assurances. The Ministry of External Affairs reaffirmed that the government was trying its best to “pave the way for the initiation of the project” and admitted that the project had not ‘evolved’ at the desired pace. “Both the Central and State governments are committed to the project. But we would like to move ahead mush faster,” said MEA Joint Secretary Gautam Bimbawale.
That both the PMO and the MEA have put their weight behind POSCO, that despite large-scale violations being reported, a proactive Environment Minister Ramesh has not yet been able to scrap the project is indicative of the murky politics of environment.
To understand the horror, follow the events that allowed POSCO to get forest clearance. It was given conditional forest clearance contingent on the Odisha government implementing the FRA — an Act that recognises that forest dwellers have a legitimate right to their land.
The Government of Odisha has agreed to build police stations for POSCO. It is a sign of that deeper malaise
On 19 December 2009, Jagatsinghpur district collector NC Jena wrote to the village sarpanches to get the consent of the forest dwellers. But the letter read like an order, an instruction to implement what appears to be a formality, an impediment in the way of Rs. 52,000 crore FDI.
“Forest land is to be diverted for a construction of a mega steel plant,” Jena wrote. “As per the instruction of the Odisha chief secretary, the said proposal is to be approved by the pallisabha (gram sabha) of the panchayats concerned. You are, therefore, instructed to take immediate steps to convene the pallisabha and submit its resolution.”
As per instructions, a pallisabha was convened by sarpanches of two of the three gram panchayats. But the impediments to the country’s largest FDI chose to come alive and exercise their constitutional right.
ON 3 FEBRUARY, the Nuagaon pallisabha passed the following resolution: “It was unanimously passed not to convert the occupied forest land into non-forest land. We are protesting the POSCO plant construction at our cost. This pallisabha has unanimously passed the right not to deliver (this land) to the administration to set up the plant forcefully and illegally. We are demanding the government to issue pattas (a certificate that establishes forests rights) in order to respect the people’s mandate in this pallisabha.”
POSCO offered them a cheque. They accepted it. A few months without their land and they already want it back
Too late Tribals of Polang village regret giving up their land for POSCO
The scrawny villagers that a multi-billion dollar company was supposed to save issued a referendum that they didn’t need to be saved after all. Copies were immediately sent to the collector.
On 23 February, the collector wrote to the state government, stating the exact opposite: “Pallisabhas have been conducted in all three gram panchayats covering the POSCO project area and no claim for settlement of rights from tribals and traditional forest dwellers have been received,” he wrote. “Since no tribals or traditional forest dwellers are residing in the area, the question of settlement of rights of under the FRA does not arise.”
By July, the Odisha government began land acquisition. Potitiopavan Behra is one of the 96 families who had to comply. “They came with the police to acquire the land,” he says. “We had no choice but to accept the compensation.”
These violations were only discovered when a FRA monitoring committee happened to pick Jagatsinghpur district for its evaluation. It relayed the violations to the MOEF, which then ordered land acuquistion to stop and later constituted the Meena Gupta Committee. If this had not happened, the project would have gone through in its current format.
That is why Noboni Mallik would rather not trust the government version of development. “Our paan kheti is like our elder son and fishing is our second,” she says, tying three fish around her waist. “We will die if POSCO comes. It will be like killing both our sons.”