India's $12bn Posco steel plant gets conditional approval

India's demand for steel is growing along with the economy

India's environment ministry has given conditional approval to South Korean company Posco's plan to build a steel plant in the eastern state of Orissa.

The $12bn plant is India's largest foreign investment project.

The deal is seen as a test case for foreign companies keen to enter India's fast-growing economy.

A government panel had earlier said the plant's environmental clearances should be scrapped. Critics say the project will exhaust iron deposits in 20 years.

Last year, mining giant Vedanta had its plans to extract bauxite in Orissa rejected for fear of damaging the environment.

Monday's approval spells out 28 "extra conditions" for the steel plant and 32 conditions for the port.

They include the company spending a share of profits on corporate social responsibility, ensuring green cover at the plant site, and restrictions on construction of the port in sensitive coastal areas.

"Projects such as that of Posco have considerable economic, technological and strategic significance for the country," the environment ministry said in a statement.

"At the same time, laws on environment and forests must be implemented seriously."

Flaws

The proposed plant has been opposed by many groups

The environment ministry set up a panel to investigate if Posco's project had been complying with the country's green law, including rehabilitating and resettling local people displaced by it.

Three of the panel's four members recommended that environmental clearances for the project be cancelled, saying there were flaws in the manner in which it was being implemented.

The project was conceived in 2005 and is India's single biggest foreign investment.

Based in the port city of Paradip, it is expected to create nearly 50,000 jobs.

But it has been opposed by many groups who argue that Posco will exhaust Orissa's iron ore resources in two decades while creating lasting environmental damage.