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INDIA: Investors fly in to tap Orissa's mineral riches

by Khozem MerchantFinancial Times
July 28th, 2006

This month plans have been confirmed or proposals announced for about $1bn (785m, 536m) worth of investment in the state. They have coincided with visits from Lakshmi Mittal, the chairman of Mittal Steel, which will soon merge with Arcelor to create the world's largest steel group; Anil Agarwal, the chairman of the non-ferrous metals manufacturer Vedanta; and Anil Ambani, the chairman of Anil Dhirubhai Ambani Group.

Naveen Patnaik, the chief minister of Orissa, says his officials have signed memoranda of understanding for investments totalling Rs2,000bn ($43bn, 34bn, 23bn). The memoranda should convert into blast furnaces, refineries and smelters over the next five to seven years and create 1m jobs directly or in spin-offs.

Mr Agarwal is investing $800m on an alumina refinery, to be followed by a $2.1bn investment in an aluminium smelter. Last week he also announced a $1bn endowment fund to create a university in the state. Orissa's economic planners are hoping for more spin-offs of that kind.

"By the grace of Lord Jagannath [a revered Hindu deity], Orissa's minerals will be transformational and trigger a second tier of development. We want Orissa to be a knowledge centre," says Mr Patnaik.

Orissa possesses a quarter of India's coal reserves, a third of its iron ore and more than half its bauxite deposits - raw materials that can be used to fire coal-based power plants and feed into the manufacture of steel and aluminium. But the abundance of untapped raw materials has exposed frailties in the state government's management of its natural wealth.

Earlier this year 13 people were killed in clashes between police and tribal communities who fear they will be short-changed as giants such as South Korea's Posco, which has started work on a 12m tonne capacity steel plant, buy up land.

The deaths occurred in an area where four greenfield steel plants are due to be built over the next five years, at a site bought by Tata Steel, India's largest private-sector steelmaker, which is regarded as a model in its treatment of the displaced. Protests from local politicians prompted an overhaul of Orissa's "rehabilitation and resettlement" policy. The United Nations Development Programme advised the state in consultation with local people and mining companies.

The new policy, introduced in April, is the benchmark for all Orissa's projects that trigger resettlement, from mining, which mostly involves private-sector investors, to irrigation, a public- sector undertaking.

"We have addressed the ambiguities. If an investor comes in now, then they will know the cost and conditions of rehabilitation," says an official involved in drawing up the policy. Analysts in Mumbai had warned anything less would be a big impediment to development. A 1m tonne aluminium joint venture between Alcan and India's Hindalco has been delayed by a decade because of, among other things, a dispute over tribal lands.

The package guarantees anyone who has to be resettled a job or cash compensation. Anyone losing land also gets a house. Tribal people on land without title are ensured equal treatment, while extended families will receive incremental benefits.

Inevitably, Orissa's policy was a compromise with UNDP norms. For example, cash compensation was about 40 per cent more than some companies had expected and was watered down.

Officials estimate that 10,000 tribal people scattered over north and east Orissa will be affected by land acquisitions resulting from projects now in hand.

"Setting up a greenfield plant is not for the light-hearted," says B. Muturaman, the managing director of Tata Steel, in reference to Mittal Steel, which is planning to build its first plant, possibly in Orissa. Tata Steel has three greenfield projects in development.



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