UPDATE 2-POSCO India steel mill likely to win approval -sources

Fri Jan 21, 2011 8:19am EST

* Approval could be granted this month

* Would be largest single foreign investment in India

* Latest signal environment ministry is softening stance

By Krittivas Mukherjee and Nigam Prusty

NEW DELHI, Jan 21 (Reuters) - A $12 billion Indian steel mill planned by South Korea's POSCO is likely to be approved by the Indian government this month, sources said on Friday, after years of delays over environmental concerns.

The expected approval, if given, would be the latest in a series of moves indicating that the environment ministry, which has until recently taken an aggressive stance on enforcing green laws, is softening its position.

Government and industry sources told Reuters on Friday the project, delayed by over three years, was likely be approved, possibly with some conditions including initial clearance for a smaller mill which will be gradually expanded.

Environment Minister Jairam Ramesh, whose hardline has brought him into conflict with industry, is deciding whether rules were violated in steps towards building the 12-million tonne capacity mill, which would be the biggest single foreign direct investment into India, in eastern Orissa state.

"The vibes are positive and the permission could come first for (a) 4-million tonne (mill) and then gradually it could be expanded," an Indian government source said, speaking on condition of anonymity.

Another government source said although the environment ministry had some reservations about the site of a port for the plant, it was likely to consider the project in a "holistic manner," meaning permission for the port could also be granted.

Neither POSCO nor the Indian environment ministry were immediately available for comment.

POSCO wants to build the mill in eastern Orissa state, but has been delayed by environmental issues and protests by local residents who say the plant will disrupt their largely agriculture and forest-based livelihoods.

The South Korean company is among several corporations, including Vedanta Resources , which have come under scrutiny from what had until recently been seen as an increasingly aggressive environment ministry, putting the department in conflict with others in the government who are pushing for rapid industrialisation.

In October, Ramesh threw out plans by London-listed Vedanta to expand its alumina refinery over green worries, but this week Ramesh said he was willing to conditionally reconsider Vedanta's expansion plan.

That remark came soon after the ministry said it could consider approving Hindustan Construction Co's Lavasa housing project on certain conditions.

Ramesh has also said POSCO's project was "fundamentally different" from Vedanta's plans, raising the likelihood that the steel project will be given the go-ahead.

Approval would see the Orissa government immediately starting to acquire land for the world's third-largest steelmaker's project.

Still, the South Korean firm has another hurdle to cross: a court case filed by a local firm against the Orissa government, contesting its decision to grant a mining concession to the South Koreans, as the Indian company had also bid for it.

The decision in this case lies with the Supreme Court, but that litigation is unlikely to delay the start of the construction if the government approves it.

POSCO was scheduled to begin production from its plant in Orissa's Kujanga region by the end of 2011. The deal for it, which was signed in June 2005, also included iron ore mining rights in the state's Khandadhar area.

(Reporting by Krittivas Mukherjee and Nigam Prusty; editing by Malini Menon and Daniel Magnowski)

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