Mumbai/ New Delhi: Korean steel giant Posco Steel, the world's fifth-largest steel maker, has signed a Memorandum of Understanding (MoU) with the Orissa government to invest $12billion (Rs52,800 crore) in the state. Posco's executive vice-president Soung Sik Cho and Orissa's principal secretary in the steel and mines department, Bhaskar Chatterjee signed the agreement.

Orissa chief minister Naveen Patnaik, Korean ambassador to India Jung Il Choi, commercial attache in the South Korean embassy Byeong Cheol Lee, and Posco's chairman Ku-Taek Lee were present on the ocassion.

POSCO's chairman, Lee Ku-Taek, siad the company expects strong demand for steel from Asia, particularly China, and does not foresee a sharp price fall despite getting rid of its excess inventory. Instead the Korean giant expects the price of hot rolled coils to stay above $500 per tonne.

To be completed in four phases, the steel major will set up India's largest steel project — a 12-million tonne plant in Paradip.

Under the agreement, $3 billion will be invested initially between 2007 and 2010 to build a 3-million-tonne plant, which will start production from 2010, POSCO said in a statement. Thereafter, 3-million tonnes would be added every two years, taking it to 12-million tonnes by 2016.

The project also involves accessing a 30-million-tonne iron ore mine, a mill for making hot-rolled coil and a sea-port. It is estimated to generate 48,000 jobs. The government of Orissa also granted POSCO mining lease rights for 30 years to supply a total of 600-million tonnes of iron ore to the new plant.

The state government has specified that POSCO would be provided 600-million tonnes of iron ore for captive use in its proposed integrated steel plant at Paradip for a period of 30 years.
The company, however, will be allowed to export iron ore against import of equivalent quantity of ore from outside.

"No ore will be permitted to be used for pure trading within the country or by way of export. The company will have to achieve a number of detailed milestones before recommendation is made for prospecting licence in the first instance and the mining lease subsequently," the state chief secretary, Dr Subas Pani, said at the MoU signing ceremony.

However, Dr Pani said that in case the company needs to import iron ore of low alumina content, it will be permitted to export equivalent quantity of high alumina content ore to its Korean plants, subject to a ceiling of 30 per cent of ore consumed by the Paradip plant a given year.

"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 in the first place," Dr Pani said, while adding that there will be no net outgo of iron ore from Orissa without value addition and the concept of net nil export will be adopted.