POSCO wary of its $12 bn India project

Dhinkia: A tense stand-off with farmers unwilling to give up their land threatens India's largest-ever foreign investment project, a USD 12 billion steel plant planned by South Korea's POSCO.

Opponents of the project have taken heart from events in neighbouring West Bengal, where plans to seize farmland for a chemicals complex were shelved after police killed 14 protesters.

"This has had a very good effect on the people struggling against the POSCO project," said protest leader Abhay Sahu. "This is an opportune time for us to move forward."

The controversy could cast a shadow over India's attractiveness as an investment destination, officials said.

Supporters of the project were already frustrated that the government of Orissa had done little to back it, apparently scared of provoking trouble after protests over another steel plant cost 13 lives last year.

Clashes between supporters and opponents of the POSCO project injured 50 people this month, and angry farmers have erected a bamboo gate at the entrance to the village of Dhinkia to keep outsiders away.

POSCO spokesman Shashanka Pattnaik said the company remained confident the project would go ahead, and was "very, very hopeful" work will start by October, after missing an earlier target date of April.

But a senior government official said he thought the project might not get under way until early next year and said there was perhaps a 25 per cent chance it might never happen.

"POSCO are pretty serious but they can't wait indefinitely," he said, speaking on condition of anonymity. "The risk for us is that if we don't get it right, no big-ticket FDI will look easily towards Orissa in particular or generally towards India."

The issue of acquiring farmland for factories has become an explosive one as industrialisation gathers pace in eastern India.

In January 2006, 13 people were shot and killed by police during a protest over a plant proposed by Tata Steel in Kalinga Nagar in Orissa. That incident has all but paralysed the state government over the land issue, analysts said.

Chief Minister Naveen Patnaik offered little to reassure POSCO's supporters in an interview with Reuters.

"We are trying to convince people but in a humane way and in a rational manner, especially after the tragic incident of Kalinga Nagar," he said. "I certainly hope that it will happen, I think it takes time, but I am sure it will happen."