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Challenging a deal

Published : Jul 29, 2005 00:00 IST



The main Opposition parties in Orissa and the BJP, a constituent of the ruling coalition, are up in arms against the terms of a deal that the Naveen Patnaik-led government signed with a Korean company to establish a steel plant in the State.

PRAFULLA DAS in Bhubaneswar

NEVER before has Orissa experienced such a controversy over an industrial project. The Memorandum of Understanding (MoU) between the Naveen Patnaik government and the Korean steel maker, Pohang Steel Company (Posco), to set up a steel plant in Paradip has triggered political turmoil in the State with leaders cutting across party lines questioning its terms. The steel plant, with an annual capacity of 12 million tonnes, will be commissioned at a cost of Rs.51,000 crores, the biggest ever foreign direct investment (FDI) in the country.

The bone of contention is the State government's decision to allow Posco to export a certain quantity of iron ore, apart from providing various other incentives. Despite stiff resistance from four Opposition parties - the Communist Party of India (Marxist), the Communist Party of India, the Orissa Gana Parishad and the Janata Dal (Secular) - Chief Minister Naveen Patnaik had his way and the MoU was signed on June 22. The Opposition failed to stall the project even after it took up the matter with Prime Minister Manmohan Singh, in New Delhi. Even Patnaik's own party colleague and former Union Steel Minister Braja Kishore Tripathy raised objections. He wrote a letter to the Prime Minister, creating an embarrassing situation for his leader.

But the controversy over the steel project took a different turn from the day the MoU was signed. The State unit of the Bharatiya Janata Party, a partner in the ruling coalition led by Patnaik's Biju Janata Dal (BJD), started questioning the MoU on various counts. It was the first time that differences between the two parties were aired openly since the alliance first came to power in March 2000. Senior BJP leader and Industry Minister Biswabhushan Harichandan abstained from the MoU signing ceremony on June 22 as he was completely "ignored" in the run up to the finalisation of the deal. Although the BJP ranks did not react openly on the day the MoU was signed, activists of the Akhil Bharatiya Vidyarthi Parishad (ABVP), the party's students' wing, sat in a dharna outside the Governor's residence opposing the government's decision to allow Posco to export iron ore.

On June 25, BJP State president Jual Oram led a party delegation to meet Naveen Patnaik and conveyed the party's displeasure over the iron ore swapping clause in the MoU. But instead of pacifying the senior BJP leader, Patnaik met party president L.K. Advani in New Delhi and complained against the Orissa leadership. Oram, who along with Harichandan were summoned to New Delhi to make their stand clear before Advani, did not give up. He wrote a letter to Patnaik on July 1 raising 12 points concerning the controversial MoU. Oram accused Patnaik of showing undue favours to Posco by promising to give everything that the company wanted from the State government.

The BJP leader criticised the promise made by the Chief Minister to include the Posco plant in the proposed Special Economic Zone (SEZ) at Paradip. "Once Paradip is declared an SEZ, you cannot impose import and export duty as well as entry tax. Thus, Orissa will not get much financial benefit," Oram said. In fact, the BJP leaders in the State find themselves more uncomfortable because Patnaik seems to be giving the impression that it was his party alone that was pioneering the State's rapid industrialisation. The Chief Minister's Office and a handful of bureaucrats are taking all important decisions on new projects, the party feels.

As the Chief Minister ignored the questions raised by Oram, senior leaders of the party held a meeting on July 5 to discuss the Posco issue. The meeting urged Patnaik to examine the points raised by Oram before reaching a final agreement with the Korean steel major. According to the MoU, Posco will need the equivalent of 600 million tonnes of iron ore of an average iron (Fe) content of 62 per cent to meet the requirements of the project. The company may swap certain quantities (not exceeding 30 per cent of the total annual requirement for the Paradip plant) of such iron ore which have high alumina content with equal quantities of low-alumina-content iron ore of equivalent or better Fe content imported for blending in order to produce better quality steel in the Paradip project and conserve energy. "Any export of iron ore by way of swap will be allowed only after an equivalent quantity of ore has been imported for the plant. The extent of the above quantity of iron ore by way of replacement for equal quantity of import of higher grade iron ore will be within the framework of the Export-Import Policy of the Government of India applicable from time to time. It is clarified that no export of iron ore will be allowed from the captive mine except by way of full replacement through import of equal quantity of high grade ore and within the limits mentioned above," the MoU says.

The Opposition parties are critical of swapping of iron ore. "If Posco intends to import ore to produce better quality steel, why should it take away an equal quantity of ore?" asked CPI(M) State secretary Janardan Pati. Regarding Posco's plan to import an additional quantity of 400 million tonnes of iron ore, the MoU said: "Posco has requested to source an additional 400 million tonnes of iron ore from India for their existing steel plants in South Korea. This can be done through a long-term commercial supply arrangement from the open market. Any such trading arrangement shall fall entirely within the domain of the Government of India and will be regulated by the prevailing Export-Import Policy of the country. No mineable reserves can be provided by Government of Orissa purely for the purpose of direct exports beyond what has been indicated for value addition in the steel plant of the company in Orissa in the preceding paragraphs. However, Government of Orissa will assist Posco in establishing suitable contacts and interfaces with Government of India for this purpose."

With the BJP creating an uncomfortable situation for Patnaik, the OGP, the CPI(M), the CPI and the Janata Dal (S) have decided to launch an agitation against the "faulty" deal. "Patnaik should realise that Posco will cause more losses to the State exchequer than helping the State to gain. It is the scandalous deal ever entered into with a foreign company by any State government," OGP president and former Minister Bijay Mohapatra said.

Meanwhile, the State unit of the Congress, the main Opposition party in Orissa, has found itself in a peculiar situation. Although some leaders of the party opposed the project initially, they chose to keep quiet after the signing of the MoU as the Congress-led United Progressive Alliance government at the Centre pushed the Posco deal. However, the Congress took a tough stand after the BJP opposed the deal. Former Chief Minister and the current Opposition Leader, J.B. Patnaik, first wrote an article in an Oriya daily questioning the intentions of the State government in signing the MoU. This triggered a debate in political circles. Later, he addressed a media conference demanding that the MoU be cancelled. He said: "The Posco project was not in the interest of the State. The State will suffer huge losses by allowing the company to export iron ore." The veteran Congress leader alleged that the Korean company had exaggerated the project cost. "The whole project will cost a maximum of Rs.25,000 crores." He criticised the State government for assuring to help the company in obtaining the Centre's approval for exporting an additional 400 million tonnes of iron ore for use in its steel plants in Korea.

As his government is touting the Posco project to be a remarkable achievement, Patnaik seems to be ignorant of the fact that it is not owing to his efforts, but the growing demand for steel, that has made steel-makers to make a beeline to the State Secretariat. The Posco deal is not the only controversy; the issue of the State's industrialisation as a whole has become a serious topic of debate. When Orissa appears all set to become a major steel hub of the world, it is time for Patnaik to consider everybody's views and concerns, particularly when his government is about to hand over almost all the known iron ore reserves of the State to various private companies. So far Patnaik had a trouble-free tenure, the Chief Minister having been able to silence his detractors in the BJD and keep the Opposition and the BJP under check. He has managed to maintain his supremacy in the State politics. But the questions raised by his critics over the Posco deal have remained unanswered. Time alone can tell whether the deal will prove to be Patnaik's Waterloo.

(This story was published in the print edition of Frontline magazine dated Jul 29, 2005.)



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