Country Risk Management

Project

PASCOs Investment in India A case study By Porf:S.B. Choughule

PASCO
I initiated the PASCO projects in Shanghai. But here the problems are very complex. The social, Political and economic environment is very different. -----Soungsik Cho-------- PASCO India Chairman and Managing Director

Highlight of Investment
POSCO-Pohang Steel Company South Korea 4th largest steel maker in the world 12 Billion USD=54,000crore investment Single Largest Investment in the Country Biggest green field project in the world

Highlight of Project -1
Integrated steel plant in Orissa including Iron Ore Mines in Khandadher Steel plant in Jagatsinghpur Captive port near Paradip 1500 MW power plant near steel factory 12 billion $ investment in India 7% CAGR in domestic market

Mineral map of Orissa

PASCO

Plant

Highlight of project -2
4000 acres land to be accquired for project
Capacity-12 mtpa-millions tonnes per annum Location-Near Paradeep-Jagatsinghpur district 2010-1st phase to be completed, capacity -4 mpta 2013-2nd phase to be completed, capacity -4mpta 2016-3rd phase to be completed, capacity -4mpta Raw material 600 million tonnes from Khandadher mines

Benefits from project

Employment Direct -13,000 Indirect-35,000 total 48,000
PASCO is required 18000 skilled workers within 8 years State taxes 89,000 crore- Excise, service tax, corporate tax 22500 crore sales and other various taxes of state Power plant for electricity Captive port for EXIM trade

Development of project
MOU signed by PASCO and Orissa Government in June 2005 Out of 4000 acres 1135 acres payment has been made by company but still could not acquired land Licence for iron ore not yet obtained Port project work just started 1500MW Power plant on drawing board

Economics Risk
India is fast growing emerging market in ASIA Inflation in between -4 to 6 % GDP growth -9 % Sufficient Foreign exchange reserve INR is appreciate against USD Therefore minimum economic risk -C

Political Risk
Sate Government is belong to Janata Dal Central Govt is belong to UPA Govt Clashes between two parties on project Exam-Central Coal & Mines Minister Mr Ram Vilas Paswan is against state on too much facilities to be given to PASCO CPI is opposing to this project on political ground. Therefore medium political risk B

Legal Risk
Kudramukh Iron Ore company went in court against state govt KIOCL-Khandadher iron ore co also went in court along with 250 applicants The orissa High court stayed away to state government for granting the mines lease There is no provision in law to favour PASCO on 250 applicants

Legal battle in Govt

The Ministry of Mines thinks that PASCO proposal falls under section 11(2) and section 11(3) of the Mines & Material (Development & Regulation Act 1957 As per Orissa Govt opinion,Section 11(5) of the said act allows to grant a licence to late applicant like PASCO
Matter is under Department of Legal affairs

This is a High Legal risk A

Social & cultural risk

Over 20,000 people from 15 villages have been protesting saying it would take away their homes and livelihoods They are protesting by establishing PASCO Pratirodh Sangram Samiti 3 officers of PASCO were taken hostage in these villages District administration is conducting Socio-economic survey

Opposition from local

We would not allow POSCO to set up its plant here. Company cannot take away peoples land Abhya Sahu President PASCO Pratirodh Sangram Samiti

Social & Cultural Risk

50 people were injured in a series of clashes between opponents and supporter of projects Land acquisition process stopped PASCO cannot communicate with local peoples due to language barrier Entry of Red Radicals As per home ministry report Moist cadre had already entered into trouble area This is high risk A

Competitive Risk
Over 250 steel companies are in India including Jindal steel-Essar Steel-SAIL-TATA steelBhushan Steel-Kudremukh Iron Ore-KIOCL KOCL has spend INR 2 crore for assessing the reserve at Khandadhar mines Kudramukh has also spend INR 2 crore
LN Mittal is planning to set 20,000crore plant in Orissa TATAs 2nd plant would be in existance by 2010 250 steel companies are opposing to PASCO Therefore this is a high competitive risk A

Competition from Indian Co

Logistics Risk
The iron ore mines and steel plant -300km Required dedicated freight corridor for continuous raw material flows from mines to factory Wagons are not available in India Paradip port has opposed to PASCO private port for captive cargo 1500MW power plant is coal based plant Therefore logistics risk is B

Analysis
Economic Risk C Political Risk B Legal Risk A Social & Cultural Risk A Competitive Risk A Therefore this project is in high risk Investment in troubled waters

Home work
Salim Group of Indonesia is planning to invest $ 4.5 billion in West Bengal Backend infrastructure link to SEZ A) express way B) Bridges C) Township and D) Knowledge city Find our risk and analysis it

 Thank you