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LATEST NEWS UPDATES | India Deals Face a Reckoning by Geeta Anand

India Deals Face a Reckoning by Geeta Anand

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published Published on Dec 4, 2010   modified Modified on Dec 4, 2010

Jairam Ramesh, India's environment minister, will make a decision in the next week that could define the future of the country: whether to approve a $12 billion South Korean-owned steel plant, the largest potential foreign direct investment ever on the subcontinent.

The plant, proposed by South Korea's Posco, has been in the works for years. It already has been cleared by the environment ministry, which Mr. Ramesh runs, and endorsed by the prime minister's office.

But Mr. Ramesh shocked the political and industrial establishment here in August by publicly putting the project on hold while he investigated reports that the rights of people living in the forest had been violated. Two committees he appointed to look into the matter have concluded that Posco broke environmental laws and failed to obtain the go-ahead for development from forest dwellers, as required by law.

Now, Mr. Ramesh must decide whether this merits killing a massive infrastructure project.

"If the minister of environment and forests is not going to implement the laws that are the acts of Parliament, what is he going to do?" Mr. Ramesh said in a November interview in his office, one of several conversations with The Wall Street Journal.

Mr. Ramesh, 56 years old, has already had a large hand in determining the nation's industrial development, as almost all big projects require his approval. His critics say that in his 17 months in office, he has veered too far in an anti-business direction, crushing many of India's largest infrastructure projects, which even his own political leadership considers vital to keep India growing.

At a time when India is actively courting foreign investors to help fund infrastructure projects, a rejection of Posco's project would send a signal to foreign investors that they can spend billions in India, with the government's support, and still be stymied.
 
Hanging in the Balance

Projects recently stalled or halted by Environment Minister Ramesh:

Approval withdrawn for London-based Vedanta Resources' alumina mines, which were to supply a $5.4 billion factory, over failure to obtain consent from local residents.

Weighing decision on Posco's $12 billion steel plant, amid allegations that forest dwellers' rights had been violated.

Turned down eight central Indian coal-mine projects over concern about old-growth forests.

Challenged $3 billion, 12,500-acre planned city outside Mumbai, over building at high elevations without appropriate permits.

Refused to allow damming of a river route that would provide more water to New Delhi—and submerge some 170,000 thick-growth trees.

India needs such projects to maintain its rapid economic growth, projected at 8.5% this year. Otherwise, the nation of 1.2 billion will struggle to move hundreds of millions of people from subsistence farming to productive industrial jobs, as China has done in the past two decades.

Yet Mr. Ramesh says that for too long India's environmental regulators have simply acquiesced to industry desires. He views it as his job to restore the balance and to ensure that India's sensitive environment, and those who live off the land, don't pay too big a price for industrial expansion.

This year alone, Mr. Ramesh withdrew approval for Vedanta Resources PLC's massive project to mine a key ingredient in aluminum, saying the company had failed to obtain the consent of forest dwellers in the area, violating the forest protection law. The London-based conglomerate had already invested $5.4 billion in building a factory nearby to be supplied by the now unapproved mine. Vedanta has denied any improprieties in connection with the mining project.

And in late November, Mr. Ramesh demanded that the developers of a 12,000-acre planned community three hours outside Mumbai explain why the project shouldn't be demolished. Mr. Ramesh said the developer, Lavasa Corp. Ltd., in which the Indian real-estate giant Hindustan Construction Company owns a 65% stake, had built at high elevations without appropriate permits. Lavasa replied that the project was in compliance with all environmental laws.

Many of his critics agree that Mr. Ramesh is technically correct in finding project after project in violation of India's laws. But they say that when this enforcement is layered on top of India's legendary bureaucracy and labyrinthine land-acquisition process, infrastructure development has come to a virtual standstill.

"There's no question, despite his good long-term intensions, that Jairam's actions are having a short-term negative impact on growth and economic development," says Deepak Parekh, chairman of the HDFC Group, India's flagship financial conglomerate and an adviser to the government on financial policy.

The country's steel minister, Virbhadra Singh, frustrated with Mr. Ramesh over his blocking of projects, publicly urged him to "be pragmatic, not dogmatic." The steel ministry reports projects valued at more than $80 billion have been delayed because of problems with environmental clearances and land acquisition.

Mr. Ramesh says he responded in a letter to the minister saying: "I am being pragmatic, just not automatic."

Shashi Ruia, managing director of Essar Group, a conglomerate that owns one of the coal-mining projects rejected by Mr. Ramesh, recently drew attention in a speech to the fact that India is far behind China in infrastructure development. China produced 567 million tons of steel last year, to India's 56 million tons, according to the World Steel Association. To close the gap, Mr. Ruia said,
 
"Government needs to get out of our way."

Mr. Ramesh doesn't have an environmental background. He graduated from the Mumbai branch of the prestigious Indian Institute of Technology before getting a master's degree in public management at Pittsburgh's Carnegie Mellon University. After a year at the Massachusetts Institute of Technology in a doctoral program, he returned to India in 1980 to join a government advisory board on energy.

After holding several government planning and commerce posts—and winning a seat in India's upper house of Parliament in 2004 as a member of the center-left Congress party—he served as the junior minister in the power ministry for a year. There, he pushed for the development of eight mines in the states of Madhya Pradesh and Chhattisgarh—mines that he now opposes.

Elevated to the job of minister of environment and forestry in 2009, Mr. Ramesh promised in his first speech to expedite decision-making on major development projects and remove corruption from the process.

"I was really scared when I heard that he wanted to expedite approvals for projects, thinking whatever life we have left in us would now be lost," said Bittu Sahgal, editor of Sanctuary Magazine and one of India's most outspoken environmentalists.

But within a couple of weeks, Mr. Sahgal and other social activists say, they began to hear that Mr. Ramesh was questioning the basis of approvals for some of the biggest infrastructure projects.

Mr. Ramesh says he began personally reviewing the files of major projects and found many were blatantly flouting environmental and forest protection laws. "The approach was that laws are like gods and goddesses—do ritual obeisance to them and don't take them seriously," he said. "The laws were seen as nuisances to be navigated around."

In a U-turn from his time at the power ministry, he sent the eight coal-mining project files to the prime minister's office with a note explaining that he couldn't in good conscience approve them because of the environmental cost, he said.

In his earlier job, his aim was to develop one of the country's richest coal deposits, he said. "I did not realize they were in the thickest, most forested area of the country," he said in an interview. "It is true that where you stand depends on where you sit."

Political observers say Mr. Ramesh can make tough decisions that contradict the wishes of the prime minister, top ministers and the nation's biggest industrial houses because he has the support of India's two most powerful people—Sonia Gandhi, president of the ruling Congress party, and her son, Rahul Gandhi, a party official who is viewed as India's future prime minister.

Mr. Ramesh acknowledges he has the strong backing of the Gandhi family, which has a longstanding interest for protecting the environment.

Even the newspaper controlled by the right-wing opposition Shiv Sena party wrote an editorial in November praising Mr. Ramesh, saying his "stubborn eco-friendly attitude is in the social, environmental and national interest."

Says Mr. Sahgal, the environmentalist: "Jairam is neither a hero nor a demon, he's just an ordinary guy. Indian politicians have fallen to such a low that an ordinary guy looks like a hero."

Mr. Ramesh has stumbled several times. On a visit to Beijing in May, he described some of his ministerial colleagues as "alarmist and paranoid" for their concern about Chinese businesses allegedly spying in India. Mr. Ramesh offered to resign. The prime minister didn't accept his offer.

Despite nixing several projects by India's largest companies, Mr. Ramesh sees Posco as his most contentious decision and says it is giving him sleepless nights.

From the start, some local residents opposed selling their land to Posco, and at one point barricaded off their village. The company seemed to be moving toward resolving its land-acquisition issues when Mr. Ramesh stepped into the fray in August. He told the company to hold off on further land acquisition until he reviewed whether forest dwellers' rights and environmental laws had been violated.

A Posco spokesman declined to comment because the project is before the ministry. It said in a recent press release that it had been trying for five years to comply with all statutory requirements.

Mr. Ramesh said social activists and political leaders sent him evidence that Posco hadn't obtained the forest dwellers' consent to the project.

That would put Posco in clear violation of the law, Mr. Ramesh said, and would make his decision clear. But he said he must also weigh the importance of the project to India's future. "I must also be conscious of the growth imperative and foreign policy objectives," he said.

The Wall Street Journal, 4 December, 2010, http://online.wsj.com/article/SB10001424052748703945904575644811417156210.html?mod=googlenews_wsj

Tagged with: Environment



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