Maoist military success sets back mining investment strategy
Posted by Admin on April 9, 2010
Deadliest Maoist Raid Highlights Mittal, Posco India Challenge
The deadliest attack on Indian security forces in four decades of left-wing conflict underscores the challenge companies including ArcelorMittal, Posco and NMDC Ltd. face in investing in mineral-rich states.
Maoist rebels killed 76 officers in an ambush yesterday in the eastern state of Chhattisgarh, where NMDC operates its biggest iron-ore mine. In neighboring states, ArcelorMittal, the world’s biggest steelmaker, and South Korea’s Posco have yet to start their $32 billion projects because of protests over land.
Resistance from property owners, some backed by Maoist or Naxalite rebels, and delays in approvals for land and mines have stalled more than $80 billion of projects in India that would double national steel output. Yesterday’s attacks are a setback to India’s efforts to rid the eastern states of left-wing guerillas and open up regions rich in iron ore, coal, bauxite and manganese to investment.
“If the global players had got a footprint in India they could have really made a good return on their investment,” said Abhisar Jain, metals and mining analyst with ICICI Securities Ltd. in Mumbai. “India as a whole will stand to lose if no global player is able to put up its plant here.”
The Naxalite rebels, named after the 1967 peasant uprising in the West Bengal village of Naxalbari, have waged a violent campaign against the government, police and landowners for more than four decades to install communist rule. It was greeted as “a peal of spring thunder” by China’s People Daily at its birth during the political purges of Mao Zedong’s Cultural Revolution.
“Most of the mining assets in India are present in the Maoists belt, which is a threat as more mining can’t take place and new leases can’t be executed,” Santha Sheela Nair, secretary at the mines ministry, said in a March 5 interview.
ArcelorMittal, which aimed to build two mills, one each in Jharkhand and Orissa states, has yet to acquire any land needed to set up the 12 million ton plant in Jharkhand, said a director at the state’s industries department, asking not to be identified as he isn’t authorized to speak to the media. The company hasn’t also acquired land in Orissa. Luxembourg-based ArcelorMittal declined to comment on yesterday’s attacks.
“Containing the Naxal movement is integral to raising India’s energy and mineral self sufficiency,” Deutsche Bank AG’s Abhay Laijawala and Anuj Singla wrote in an April 2 report. “Unless the Naxal resistance abates, the high levels of risk associated with doing business in Naxal-infested areas will deter investment.”
Posco’s $12 billion steel unit and iron-ore mine in Orissa has been delayed for five years as the company is unable to acquire almost 90 percent of the land required for the project due to opposition from the local population. The company has also not been able to secure any mines.
“When you are setting up projects of this size there are bound to be some people who will dissent,” Posco India General Manager Simanta Mohanty said yesterday in an interview. “The challenge before us is to mobilize the support of the people and get the required land.”
Hyderabad, Andhra Pradesh-based NMDC, Asia’s third-biggest iron ore producer, posted a 40 percent decline in third-quarter profit after a slurry pipeline used for transporting ore was damaged by Maoists. The company, in which the government sold an 8.38 percent stake last month, mentioned rebel attacks as one of the risk factors in the sale document. The company has plans to raise production capacity by 67 percent to 50 million tons by 2015.
NMDC said yesterday’s incident hadn’t disrupted its biggest mine as the company protects its facilities with barriers and security patrols.
“Mining operations in the Bailadila mines are normal,” NMDC Chairman Rana Som said yesterday in a telephone interview. “The mine area is surrounded by several layers of fencing and we monitor the area from watchtowers.”
India needs to counter the terror tactics that risk hampering industrial growth, the Federation of Indian Chambers of Commerce and Industry, or Ficci, said in a November report.
“Just when India needs to ramp up its industrial machine to lock in growth and when foreign companies are joining the party, Naxalites are clashing with mining and steel companies essential to India’s long-term success,” the report said.
At the Niyamgiri Hills in Orissa, the tribal population and non-governmental agencies oppose a bauxite mine planned by Vedanta Aluminium Ltd., a unit of London-based Vedanta Resources Plc. Construction has been delayed for more than four years.
“What can the company give us?” Niranjan Acharya, who lives in the area and “absolutely” opposes the Vedanta mine, said in an interview with Bloomberg UTV. “How much employment can they possibly generate? Our livelihood is Niyamgiri, we get everything from there. If the mining happens, 10 to 20 years down the line this place will become a desert, what will the people here do then?”
To win over the population, the federal government is proposing laws to quicken mine allocation and land acquisition. The law will allow companies to give annuities to the families displaced from mining areas, besides a one-time compensation.
“The aim is to involve the local population in the developmental activities of the region so they do not feel left out and resort to opposition” Mines Secretary Nair said.