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LATEST NEWS UPDATES | India Journal: Why Vedanta Lost and Posco Looks Like a Winner by Rupa Subramanya Dehejia

India Journal: Why Vedanta Lost and Posco Looks Like a Winner by Rupa Subramanya Dehejia

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published Published on Jan 5, 2011   modified Modified on Jan 5, 2011

Two large industrial projects, one poor state, two likely different outcomes — and a long-haired, flamboyant environment minister-turned-crusader starring in both. No, this is not your latest blockbuster but it has the makings of one.

As reported Monday, Posco, the South Korean steelmaker, cleared a major regulatory hurdle in its bid for a massive steel project in Orissa. An environment ministry panel gave clearance for an initial steel production capacity of 4 million tons annually. Posco’s $12 billion project in India, estimated to be the single biggest investment by a foreign company, had faced delays in getting environmental clearances since 2005 amid opposition from local communities concerned that the development would deprive them of their homes and livelihoods.

Rewind to August in the same state, Orissa. U.K.-based Vedanta’s $1.7 billion project to mine bauxite in the Niyamgiri Hills was rejected by a panel of the same environment ministry on the grounds that the livelihoods of tribals living in the area and biodiversity would have been destroyed. According to the panel’s findings, Vedanta was also found to have breached several environmental protection acts.

The environment minister, Jairam Ramesh, has been criticized by various commentators for blocking projects in non-Congress ruled states and supporting projects in those ruled by the Congress. Be that as it may, in this case we are looking at two projects in Orissa, so the criticism is moot.

So what’s going on? First, we must note that Posco still hasn’t been completely cleared. It will take yet another decision by Mr. Ramesh, expected by the end of this month, for the full green light.

But let’s say Mr. Ramesh, who’s both an engineer and economist by training, did a cost-benefit analysis of the two projects. What would be on each side of the ledger for both?

First, there’s the difference in order of magnitude, a $12 billion versus $1.7 billion investment — presumably, much more economic benefit is riding on the larger than the smaller project. Further, a “no” to Vedanta perhaps wasn’t too damaging for the foreign investment climate but a “no” to Posco would surely have a chilling effect on future foreign investment and large-scale development projects.

Second, backing or lack of it by the respective home governments could have played a crucial role. A U.K. government agency found Vedanta to be in violation of the human rights of the tribals by failing to consult them.

By contrast, Posco has been heavily backed at the highest levels by the South Korean government and has not faced similar criticism.

A related point is that Vedanta was widely criticized by NGOs, social activists and commentators in the media. So negative was the publicity that, for example, the Church of England withdrew its investment from the company and Norway’s Ministry of Finance excluded it from the investment portfolio of the Norwegian Government Pension Fund.

Posco, in contrast, has flown relatively below the radar screen of these same groups and has not attracted the same harsh criticism. Taken together, Vedanta was widely seen as representing the worst excesses of environmentally damaging extractive development, whereas Posco so far is positioned as a well-behaved national champion. Clearly, Posco has managed its lobbying and public relations much better than Vedanta.

Looking back at this list, how many of these have to do directly with the environment? None, really. The bottom line is that both projects would cause damage to the environment.

What is striking is that the assessments by the panel have at least as much to do with social development as they do with the physical environment. In the case of Posco, the panel was assured that the 4,000 acres needed was smaller compared to similar-sized projects by other companies, compensation paid to already-displaced farmers and fisherman was fair and drinking water would not be affected by the project. In addition, the panel recommended that 5% of the total project cost should be used for community projects.

One has to ask: what do “community” projects have to do with the environment? Or for that matter, what does “compensation”? Cynical though it may sound, it would appear that these major industrial investors are becoming sub-contractors to undertake the government’s social welfare programs. This is a novel form of public-private partnership. But is it an appropriate topic for environmental assessment?

The goal of protecting vulnerable groups and the nation’s forests is, of course, laudable. But where does this argument logically stop?

What happens to the hundreds of millions of Indians who live in urban areas? Will the environment ministry protect them, too?

When I come home smelling like an ashtray having inhaled auto fumes, and when many in this country suffer serious respiratory problems, or die from drinking unsafe tap water, I have to ask Mr. Ramesh: Where is the swift activism on improving the quality of life in our cities?

That prospect might be anathema to the business folks who already think Mr. Ramesh is overstepping his bounds with his aggressive enforcement of the environmental laws. But clean water and air – in our cities as well as our sensitive rural areas — are fundamentally about the environment, aren’t they? And aren’t there many urban dwellers who’re vulnerable too?


The Wall Street Journal, 5 January, 2011, http://blogs.wsj.com/indiarealtime/2011/01/05/india-journal-why-vedanta-lost-and-posco-looks-like-a-winner/


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