Company Name : Generic Source : Wall Street Journal

NEW DELHI—India's largest-ever foreign-investment proposal caught a tailwind Monday, when a federal panel approved a plan by South Korea's Posco to build a $12 billion steel project in eastern India.

 

Although final environmental clearance rests with India's environment minister, whose decision is likely by the end of this month, the panel's approval makes it harder for the government to block the project in Orissa state.

 

The news came as a relief to the South Korean company, whose project hasn't budged for five years. Monday's decision by the federal environmental panel also lends encouragement to other foreign and domestic companies that have run up against the government's recent hard line on environmental clearances.

 

Posco's project, like several other proposed steel plants in India, also has faced strong opposition from local landowners who said the massive development would deprive them of their homes and livelihoods. Posco's plant still awaits approval from a committee considering whether the project violates tribal rights.

 

The government-appointed environmental panel said Monday that the initial approval given to the plant in 2007 appeared justified in light of new data.

 

Saki Vardhan, 70, holds her grandson Dinesh as she speaks at her betel leaf farm where the future Posco steel company plant is to stand, in Patana, Orissa, India.

 

The case is being closely watched not just because of its scale, but also because India's environment ministry of late has thwarted several high-profile projects, such as coal mines, on the grounds that proper environmental clearances hadn't been received.

 

Environment Minister Jairam Ramesh has become a focal point for industry criticism that his department leans too heavily toward environmental protection at the expense of fostering responsible development. Mr. Ramesh has said the Posco project would be among the most difficult decisions he has faced in office. He couldn't be reached for comment Monday.

 

The environmental panel agreed with a ruling by Orissa's provincial government that the compensation paid to displaced farmers and fishermen for the Posco project was fair. The panel also said drinking water for the local population won't be affected by the project. The panel said the 4,000 acres sought by Posco appeared compact, given that other steelmakers use more land for similar-sized projects.

 

Environment Minister Jairam Ramesh, who is expected to give a final ruling this month, has faced industry criticism.

 

The approval is limited, however, to the initial production capacity of the plant, which is around four million tons a year. Every stage of expansion for the project, which Posco hopes will produce 12 million tons a year, will require separate clearances, the panel reiterated.

 

It also said 5% of the total project cost should be used for socially relevant projects in the area and that one-quarter of the project area—1,000 acres—should be reserved as green space.

 

Within six months of the start of construction, Posco is to submit to authorities its plan to build a township for the workers.