South Korean steel maker Posco said yesterday that it would pull out of a $5.3 billion steel mill development project in Karnataka, but would proceed with its larger $12 billion project in Orissa.
The Korean steel maker's Orissa project is billed as India's largest foreign direct investment.
Posco said in a regulatory filing that it had agreed to the cancellation of the project with the government of Karnataka due to delays in receipt of iron ore mining rights and opposition from residents, which had held back land acquisition.
Posco's main steel project in Odisha would gain additional impetus with the move, according to commentators. Eight years in the making already, the project had recently gained momentum with the clearing of legal obstacles to the granting of an iron ore exploration licence.
Posco spokeswoman Kim Ji-young said, the company would proceed with a steel mill project in Odisha, which was making progress. The latest move would make the company more focused on the project, he added.
Posco, the world's fifth-largest steelmaker, had pursued plans for three steel mills in India as it sought to hedge its bets on the slow-moving Odisha project.
The company, in 2010, signed a preliminary agreement with the Karnataka state government for the construction of a mill capable of producing 6 million tonnes of steel a year, after signing a separate steel mill deal with state-run Steel Authority of India, a year earlier.
''With the given market conditions and significant delay in acquiring the required land in Gadag, we have decided to close our proposed 6-MTPA (million tonnes per annum) steel plant in Karnataka,'' Posco India CMD Yong Won Yoon said in a statement.
''We highly appreciate the Industries Department (Government of Karnataka) and KIADB (Karnataka Industrial Area Development Board (KIADB) for their co-operation and cordial support in this regard,'' Yong said.
''In future, if we get an attractive business proposal from the state, we may consider it and return to Karnataka,'' Posco India CMD said.
Progress on acquisition of land for the project was held back due to agitation by some farmers and religious leaders and finally, the acquisition halted in July 2011.
The statement said, additionally, the mining scam in the state made the project progress ''stagnant''.
''Consequently, in June 2013, KIADB and Posco cordially agreed to end this project. However, both will positively consider any good future opportunity for investment,'' the statement said.
On 1 July 2013, KIADB officially returned Rs60 crore to Posco, deposited as initial payment for land acquisition in 2010, the statement added.