A government panel wants to withdraw environmental clearances for South Korean steel giant Posco to build a $12 billion steel plant in India _ potentially unraveling one of India's largest-ever foreign direct investment projects.
An Environment Ministry panel found "serious lapses and illegalities" in the environmental clearance process and in obtaining consent from locals for Posco's long-delayed steel plant and port in the eastern state of Orissa.
Three of the four panel members in their majority opinion recommended that clearances obtained in 2007 and 2009 be revoked and a fresh assessment of the project's impact on local villagers and the environment be undertaken _ more than five years after the state government and Posco signed the deal.
The dissenting committee member agreed that proper consent had not been obtained from locals and that Posco should do a comprehensive environmental impact assessment of the plant and port, but argued that existing clearances should be upheld.
If Environment Minister Jairam Ramesh accepts the findings, which were released Monday, it would be the second high-profile foreign investment derailed by the ministry in the last two months.
The report fits a pattern of increasing scrutiny by the Ministry of Environment as India struggles to quell left-wing violence concentrated in mineral-rich eastern states, where rebels inspired by the teachings of Mao have tapped into anger among the rural poor about being left out of the country's economic gains.
In August, following a similar panel report, India's Ministry of Environment refused Vedanta Resources permission to mine bauxite for its alumina refinery in Orissa, citing violations of environmental and human rights laws, and said it is considering legal action against the London-based mining giant, pummeling Vedanta's stock.
Work on Posco's 12 million metric ton steel mill and affiliated power plant, railway line, road, water supply infrastructure and port has not yet begun as the required land has not been handed over to the company.
The total project requires 1620.5 hectares (4004.3 acres) of land, of which 1,253 hectares (3,097 acres) is forest land. It would affect about 700 families in eight villages, whose inhabitants _ led by Posco Pratirodh Sangram Samiti activists, who are affiliated with the Communist Party of India _ have protested against the project.
Business interests fear the Ministry of Environment's growing activism will send a bad signal to foreign investors and hamper India's industrialization, widely viewed as crucial for growth and overcoming poverty.
Major steel projects by ArcelorMittal and Tata Steel, as well as special economic zones, factories and power plants, have also been delayed because of land acquisition fights and problems with government clearances.
In a Tuesday editorial, the Indian business daily Mint said the Posco panel's findings are "not the best message a country seeking foreign investment can send to investors. And it's simply not fair to the companies involved." They recommended compensating companies for government reversals.
Ramesh, in a September speech, emphasized that he believes robust economic growth is crucial to meet India's long-term social and strategic objectives.
But he strongly opposed growth at any cost. He sought to frame recent decisions to block projects _ like Vedanta's mine _ as a question of obeying the law, rather than an environment versus development debate.
"Industry has assumed that somehow these laws can be 'managed' and governments too have not insisted that the laws be implemented both in letter and spirit," he said. "The thrill of circumvention must be replaced by the joy of compliance."
The Ministry of Environment on Tuesday launched a specialized network of courts, called the National Green Tribunal, to try environmental cases. There are now 5,000 such cases wending their way through Indian courts.
Ramesh is also pushing to set up a National Environmental Protection Agency to better appraise projects and monitor compliance.