Saturday, December 22, 2007
A Contract of Dishonour: A Critique of POSCO MoU
From Combat Law
Bargaining Lives
POSCO brings Orissa government to its knees as an MOU signed between the two is not only going to rob thousands of villagers of their tenuous preserves in far off hamlets but also ties state's hands from doing anything except to support, assist, protect and pave the way for investors' interests in all eventuality.
Madhumita Dutta, Saurabh Bhattacharjee and Usha Ramanathan
None other than Prime Minister Manmohan Singh announced in June this year that the work at the POSCO project site in Jagatsinghpur district of Orissa will begin on April 1, 2008. However, he failed to acknowledge the fact that there is intense opposition from people who stand to get affected by the project. Naveen Patnaik-led Orissa government has assured the company about the transfer of 4004 acres of land by April for the integrated steel plant. On its part, the company is arm-twisting the state and central government to expedite the process or else shift the project somewhere else. Given the mood of the people of Nuagaon, Dinkia, Kujang and other affected villages, none of the above propositions will be easy unless the state decides to use armed force. In the past, the Orissa government has not hesitated to unleash police and paramilitary forces against the people of Kashipur, Lanjhigarh, Kalinganagar, who had opposed similar industrial or mining projects.
The state in its bid to attract private capital has abdicated its role as a regulator. In the face of stiff popular resistance, it has resorted to every means to subvert legal and constitutional safeguards. POSCO is no exception to this. A close scrutiny of the POSCO MoU reveals state's nefarious intentions.
Insidious Contract
On 22 June 2005, a memorandum of understanding (MoU) was drawn up between the Governor of Orissa (representing the state) and POSCO, a South Korean steel major, for the establishment of a 12 million tonne per annum integrated steel plant at Paradip in Jagatsinghpur district of Orissa. The total investment in the project is estimated to be US $12 billion after completion, one of the largest foreign direct investments in the country.MoU also includes other components-mining facilities, road, rail and port infrastructure for the project, integrated township, water supply, and captive power plant.
State as a realtor
The Orissa government has promised the company expeditious transfer of all non-forest land and acquisition of private land. As per the MoU, the Company will need more than 6,000 acres of land in the following manner:
20-25 acres in Bhubaneswar for their registered office and headquarters
4,000 acres for the steel plant and associated facilities
2,000 acres for township development
Additional pockets for transport and water projects etc.
The Orissa government has committed to acquire and transfer such large chunks of land free of encumbrances through the Orissa Industrial Infrastructure Development Corporation. The cost for the land will be determined under the Land Acquisition Act for private lands and for government land on the basis of the prevailing Industrial Policy Resolution on concessional rates. A question that deserves to be asked is when the land is to be acquired for a private company from private land owners, why must the state act as an agent and acquire land, more so under an archaic and colonial Land Acquisition Act (LAA). The LAA should not be used to dispossess people, but be a means of protecting people in their negotiations with industry. The state should not abdicate its role in protecting against the exploitation of the people from whom land is being taken over. The state should ensure that the people from whom land is being acquired have full information so that their agreement to sell is informed. They are not led into making decisions that would be to their detriment.
As has often been the cases, the state identifies the land for location of industry. Then it lets the corporations negotiate or coerce people into selling their land. This is done to show that the state is leaving things to market. As we can see, this is not about leaving it to the terms of the market. In the matter of selling of land, industry should not be allowed to prey on the weaknesses whether arising out of lack of information or whatsoever other reasons from the point of view of the people from whom land is intended to be taken away.One critical issue that the MOU has not factored in is the impact of such large scale diversion of land against the interests of petty land holders, labourers and landless farmhands. The last of them would be completely dispossessed of their livelihood and would not be entitled to any compensation. The Land Acquisition Act does not include landless agricultural labourers within its definition of 'interested person'. The Orissa Resettlement and Rehabilitation Policy 2006 also fails to provide any protection to landless peasants and labourers. While the policy speaks of the need to 'address the specific needs of the women, vulnerable groups and indigenous communities', its provisions are vague and do not spell out the entitlement of the landless labourers. In Jagatsinghpur district, where POSCO steel plant is proposed to come up, almost 300 families are yet to be allotted legal titles. In the absence of pattas or titles, the villagers have virtually no bargaining power and will get displaced without adequate or any compensation. Rehabilitation in such cases is not even considered by the government.
R & R packages
The MOU notes that Resettlement and Rehabilitation (R&R) for POSCO oustees will be in accordance with the Orissa Resettlement and Rehabilitation Policy 2006, which was drafted and approved by the cabinet in April 2006, in the aftermath of the Kalinganagar agitation.The provisions of this R & R Policy fall short of acceptable standards and are nothing more than an eyewash. It fails to ensure any employment guarantee to the displaced; it carries just a stipulation that the industries give job "preference" at least to one nominated member of each affected family. Further, it remains silent about the government's role in cases where people don't want to be displaced by the industrial projects. More critically, while mouthing an array of platitudes, it is non-committal on ensuring land for land rehabilitation for the displaced families. This makes the entire R & R policy mere eyewash as no amount of cash can compensate for the loss of source of permanent livelihood. Cash compensation by itself does not enable generational farmers with lack of alternate technical skills to find other sources of livelihood. This aspect was recognised even by the Supreme Court before it sadly remained short of implementing its own verdict in the Narmada Bachao Andolan case. R & R Policy ignores the fact that cash compensation amounts to neither rehabilitation nor resettlement. It is not and cannot ever be an adequate replacement for a source of livelihood coming down and secured through generations.
One of the most fundamental limitations of the R & R Policy is that it does not speak in terms of commitment from the state or entitlements for the affected persons. It just mouths homilies on what the state government should do but does not set out specific commitments. Further, it places no onus on the state government to consult the displaced families while designing and implementing the rehabilitation and resettlement plan.
Permission for mining
The MoU envisages allotment of coal mine and iron mine blocks for captive mining for the project, either directly or through a PSU. In this regard, the Orissa government has promised to recommend and 'to use its best efforts' to ensure that the central government grants its approval for prospecting licenses and captive mining leases. It is to be noted that the conditions governing the grant of such licenses are provided by the Mines and Minerals (Development and Regulation Act, 1957) and the Mines Act, 1952, together with the rules and regulations framed under them, which constitute the basic laws governing the mining sector in India. Further several regulatory powers have been vested in the state government. The state government has to exercise those regulatory powers independently and in accordance with statutory mandate and administrative law principles guiding exercise of discretion. The state government promises the company or POSCO its best efforts to ensure grant of all relevant licenses and lease, there is a patent conflict of interest between the responsibilities of the state government under the mining laws and its obligations under the instant MoU. The independence of the state government to act as a neutral regulator, according to the statutory principles and compelling public interest, is severely compromised by its assurances under the MoU.
State govt's role in litigationClause 6 (5) of the MoU states that the government shall recommend such areas as are free from litigation and encumbrances and that in case of any litigation 'at any stage', the government shall diligently defend its recommendation. Such a clause should ordinarily be unexceptionable. However, the scope of diligent defence should only extend to past encumbrances and litigation. But the instant clause provides that the state government will defend at 'any stage', its recommendations. This phrase, 'at any stage' takes this clause beyond the ordinary realm. This raises the question as to should the state government obligate itself to defend its recommendations in a litigation at a subsequent or distant time when the grounds for challenge to such recommendations may include any dereliction or misdeed of the company.
Contract overrides statutes
The MoU contains a series of promises from the state government in the nature of assuring its best efforts in facilitating all necessary consents and clearances for all the components of the proposed steel project and all ancillary ventures outlined in the MoU. For instance, it promises assisting the company in securing clearance under the Forest Conservation Act and Environment Protection Act, clearance for creation of water bodies and pipelines, using its best efforts to enable the company secure no objection certificate through the state Pollution Control Board, facilitating grant of Coastal Regulation Zone (CRZ) clearance.These tall promises by the state completely displaces the statutory mandate vested in the state government and bodies like the State Pollution Control Board by the whole gamut of environmental statutes and regulations. Indian environmental laws, as enunciated by the Forest Conservation Act, Water Act, Air Act and the numerous rules framed under the Environment Protection Act, including the Environment Impact Assessment (EIA) Notification and the CRZ Notification vest a tremendous amount of regulatory powers on the state government. The MoU, by committing the state government to enabling grant of consent to the company, prejudices and predetermines the regulatory functions of the government. Thus, the MoU interferes with future exercise of statutory powers and, therefore, displaces the statutory mandates vested in the government.
The undertakings made by the state government prejudice the issues of grant of necessary license, consent orders and permits to the company. These decisions will be made on the basis of the contractual mandate of the MoU.
This contravenes the widely accepted rule of administrative law which states that a public authority cannot, by contract, restrict the future exercise of its statutory powers. This was acknowledged by the Supreme Court in Indian Aluminum Company v. Kerala State Electricity Board where the Court also referred to several English precedents.
Unlawful object The undertakings made by the state government prejudice the issues of grant of necessary license, consent orders and permits to the company. These decisions will be made on the basis of the contractual mandate of the MoU. In fact, the grant of such permits has been rendered a fait accompli by this MoU. As such, the MoU stands in contravention to the established principles of administrative law. More problematically, there is a real danger of the state government finding itself bound to the promises made in the MoU, particularly if the company acts upon the promises made therein. As such, the state government may becompletely bound by the promises held out in the MoU and the contractual obligations will completely displace the statutory mandate vested in it. It must be noted in this context that one of the general principles of contract as postulated in Section 23 of the Indian Contract Act says that the consideration or object of an agreement is unlawful if it is forbidden by law; or is of such nature that, if permitted it would defeat the provisions of any law. Every agreement of which the object or consideration is unlawful is void. Admittedly, a MoU is not strictly speaking a contract and nor are the promises made by the state governments in the nature consideration in true sense of the term. At the same time, an MoU is indeed an agreement that would shape the contours of the final contracts on each specific issue discussed in the MoU and consequently, the fundamental principles of contractual laws must still very much be applicable to it. Therefore, it may be argued that the current MoU contains clauses that contravene the legal principles guiding the exercise of administrative discretion and, thus, the objects of this agreement are unlawful. Consequently, such an agreement can be said to be a void agreement in so far as they fetter and displace administrative discretion vested by statutes by creating a conflict of interest.
Judge in its own cause
These clauses also create a scenario where the state government, being an interested party due to its part in the MoU, judges its own cause while granting necessary permits under the different environmental laws. This is a complete inversion of the fundamental principle of natural justice which affirms that no one shall be a judge in his or her own cause. It is an unexceptionable rule of law that justice must not only be done but also must be seen to have done. The MoU and the promises of the State Government made therein completely shatter the objectivity of the state government and create a very strong apprehension of bias.
Clash of interest MoU also avers that the state government shall recommend to the central government setting up of SEZ as required by POSCO. Ideologically, setting up of SEZ and its appurtenant privileging of corporate interests over basic rights of the people, creation of anti-people and anti-labour enclaves that are bereft of any form of democratic control is unconscionable and must be resisted at all costs. But the specific clause in this MoU even falls foul of the limited norms of the SEZ Act. As already argued earlier, it is well established in law that the state government must apply its mind objectively and with reference to the objectives and provisions of the Act and make its recommendations. However, this MoU clearly fetters the state government's power to make independent recommendations and substitutes its discretion with contractual obligation towards POSCO and thus deprives the provision of state government's approval of itsentire substance and meaning.
Special treatmentThe MoU states that Orissa government will assist POSCO in establishing suitable contacts and interfaces with the Indian government for POSCO's requirement for 400 MT of iron for its steel plants in Korea. This being a market transaction, there is no reason why the state government must interfere in it by providing special assistance to POSCO when the company can purchase its requirements from the open market.
Militarisation of the region
Clause 17 of the MoU states that the state government shall be responsible for the security of the project and take all steps including setting up of new police stations. This insidious provision highlights the state-corporate nexus that has acquired a lethal shape in this neo-liberal era. The state is increasingly becoming just a sentinel guarding the penetration of the mineral rich regions of the country by the global capital and is abdicating its functions of honouring and protecting the fundamental, political and socio-economic rights of the indigenous people and other citizens. This is an acknowledgement of the role of the state in repressing popular movements and resistance against mega projects as being witnessed in Kashipur and in Kalinganagar.
Writers are members of Delhi Solidarity Group
Bargaining Lives
POSCO brings Orissa government to its knees as an MOU signed between the two is not only going to rob thousands of villagers of their tenuous preserves in far off hamlets but also ties state's hands from doing anything except to support, assist, protect and pave the way for investors' interests in all eventuality.
Madhumita Dutta, Saurabh Bhattacharjee and Usha Ramanathan
None other than Prime Minister Manmohan Singh announced in June this year that the work at the POSCO project site in Jagatsinghpur district of Orissa will begin on April 1, 2008. However, he failed to acknowledge the fact that there is intense opposition from people who stand to get affected by the project. Naveen Patnaik-led Orissa government has assured the company about the transfer of 4004 acres of land by April for the integrated steel plant. On its part, the company is arm-twisting the state and central government to expedite the process or else shift the project somewhere else. Given the mood of the people of Nuagaon, Dinkia, Kujang and other affected villages, none of the above propositions will be easy unless the state decides to use armed force. In the past, the Orissa government has not hesitated to unleash police and paramilitary forces against the people of Kashipur, Lanjhigarh, Kalinganagar, who had opposed similar industrial or mining projects.
The state in its bid to attract private capital has abdicated its role as a regulator. In the face of stiff popular resistance, it has resorted to every means to subvert legal and constitutional safeguards. POSCO is no exception to this. A close scrutiny of the POSCO MoU reveals state's nefarious intentions.
Insidious Contract
On 22 June 2005, a memorandum of understanding (MoU) was drawn up between the Governor of Orissa (representing the state) and POSCO, a South Korean steel major, for the establishment of a 12 million tonne per annum integrated steel plant at Paradip in Jagatsinghpur district of Orissa. The total investment in the project is estimated to be US $12 billion after completion, one of the largest foreign direct investments in the country.MoU also includes other components-mining facilities, road, rail and port infrastructure for the project, integrated township, water supply, and captive power plant.
State as a realtor
The Orissa government has promised the company expeditious transfer of all non-forest land and acquisition of private land. As per the MoU, the Company will need more than 6,000 acres of land in the following manner:
20-25 acres in Bhubaneswar for their registered office and headquarters
4,000 acres for the steel plant and associated facilities
2,000 acres for township development
Additional pockets for transport and water projects etc.
The Orissa government has committed to acquire and transfer such large chunks of land free of encumbrances through the Orissa Industrial Infrastructure Development Corporation. The cost for the land will be determined under the Land Acquisition Act for private lands and for government land on the basis of the prevailing Industrial Policy Resolution on concessional rates. A question that deserves to be asked is when the land is to be acquired for a private company from private land owners, why must the state act as an agent and acquire land, more so under an archaic and colonial Land Acquisition Act (LAA). The LAA should not be used to dispossess people, but be a means of protecting people in their negotiations with industry. The state should not abdicate its role in protecting against the exploitation of the people from whom land is being taken over. The state should ensure that the people from whom land is being acquired have full information so that their agreement to sell is informed. They are not led into making decisions that would be to their detriment.
As has often been the cases, the state identifies the land for location of industry. Then it lets the corporations negotiate or coerce people into selling their land. This is done to show that the state is leaving things to market. As we can see, this is not about leaving it to the terms of the market. In the matter of selling of land, industry should not be allowed to prey on the weaknesses whether arising out of lack of information or whatsoever other reasons from the point of view of the people from whom land is intended to be taken away.One critical issue that the MOU has not factored in is the impact of such large scale diversion of land against the interests of petty land holders, labourers and landless farmhands. The last of them would be completely dispossessed of their livelihood and would not be entitled to any compensation. The Land Acquisition Act does not include landless agricultural labourers within its definition of 'interested person'. The Orissa Resettlement and Rehabilitation Policy 2006 also fails to provide any protection to landless peasants and labourers. While the policy speaks of the need to 'address the specific needs of the women, vulnerable groups and indigenous communities', its provisions are vague and do not spell out the entitlement of the landless labourers. In Jagatsinghpur district, where POSCO steel plant is proposed to come up, almost 300 families are yet to be allotted legal titles. In the absence of pattas or titles, the villagers have virtually no bargaining power and will get displaced without adequate or any compensation. Rehabilitation in such cases is not even considered by the government.
R & R packages
The MOU notes that Resettlement and Rehabilitation (R&R) for POSCO oustees will be in accordance with the Orissa Resettlement and Rehabilitation Policy 2006, which was drafted and approved by the cabinet in April 2006, in the aftermath of the Kalinganagar agitation.The provisions of this R & R Policy fall short of acceptable standards and are nothing more than an eyewash. It fails to ensure any employment guarantee to the displaced; it carries just a stipulation that the industries give job "preference" at least to one nominated member of each affected family. Further, it remains silent about the government's role in cases where people don't want to be displaced by the industrial projects. More critically, while mouthing an array of platitudes, it is non-committal on ensuring land for land rehabilitation for the displaced families. This makes the entire R & R policy mere eyewash as no amount of cash can compensate for the loss of source of permanent livelihood. Cash compensation by itself does not enable generational farmers with lack of alternate technical skills to find other sources of livelihood. This aspect was recognised even by the Supreme Court before it sadly remained short of implementing its own verdict in the Narmada Bachao Andolan case. R & R Policy ignores the fact that cash compensation amounts to neither rehabilitation nor resettlement. It is not and cannot ever be an adequate replacement for a source of livelihood coming down and secured through generations.
One of the most fundamental limitations of the R & R Policy is that it does not speak in terms of commitment from the state or entitlements for the affected persons. It just mouths homilies on what the state government should do but does not set out specific commitments. Further, it places no onus on the state government to consult the displaced families while designing and implementing the rehabilitation and resettlement plan.
Permission for mining
The MoU envisages allotment of coal mine and iron mine blocks for captive mining for the project, either directly or through a PSU. In this regard, the Orissa government has promised to recommend and 'to use its best efforts' to ensure that the central government grants its approval for prospecting licenses and captive mining leases. It is to be noted that the conditions governing the grant of such licenses are provided by the Mines and Minerals (Development and Regulation Act, 1957) and the Mines Act, 1952, together with the rules and regulations framed under them, which constitute the basic laws governing the mining sector in India. Further several regulatory powers have been vested in the state government. The state government has to exercise those regulatory powers independently and in accordance with statutory mandate and administrative law principles guiding exercise of discretion. The state government promises the company or POSCO its best efforts to ensure grant of all relevant licenses and lease, there is a patent conflict of interest between the responsibilities of the state government under the mining laws and its obligations under the instant MoU. The independence of the state government to act as a neutral regulator, according to the statutory principles and compelling public interest, is severely compromised by its assurances under the MoU.
State govt's role in litigationClause 6 (5) of the MoU states that the government shall recommend such areas as are free from litigation and encumbrances and that in case of any litigation 'at any stage', the government shall diligently defend its recommendation. Such a clause should ordinarily be unexceptionable. However, the scope of diligent defence should only extend to past encumbrances and litigation. But the instant clause provides that the state government will defend at 'any stage', its recommendations. This phrase, 'at any stage' takes this clause beyond the ordinary realm. This raises the question as to should the state government obligate itself to defend its recommendations in a litigation at a subsequent or distant time when the grounds for challenge to such recommendations may include any dereliction or misdeed of the company.
Contract overrides statutes
The MoU contains a series of promises from the state government in the nature of assuring its best efforts in facilitating all necessary consents and clearances for all the components of the proposed steel project and all ancillary ventures outlined in the MoU. For instance, it promises assisting the company in securing clearance under the Forest Conservation Act and Environment Protection Act, clearance for creation of water bodies and pipelines, using its best efforts to enable the company secure no objection certificate through the state Pollution Control Board, facilitating grant of Coastal Regulation Zone (CRZ) clearance.These tall promises by the state completely displaces the statutory mandate vested in the state government and bodies like the State Pollution Control Board by the whole gamut of environmental statutes and regulations. Indian environmental laws, as enunciated by the Forest Conservation Act, Water Act, Air Act and the numerous rules framed under the Environment Protection Act, including the Environment Impact Assessment (EIA) Notification and the CRZ Notification vest a tremendous amount of regulatory powers on the state government. The MoU, by committing the state government to enabling grant of consent to the company, prejudices and predetermines the regulatory functions of the government. Thus, the MoU interferes with future exercise of statutory powers and, therefore, displaces the statutory mandates vested in the government.
The undertakings made by the state government prejudice the issues of grant of necessary license, consent orders and permits to the company. These decisions will be made on the basis of the contractual mandate of the MoU.
This contravenes the widely accepted rule of administrative law which states that a public authority cannot, by contract, restrict the future exercise of its statutory powers. This was acknowledged by the Supreme Court in Indian Aluminum Company v. Kerala State Electricity Board where the Court also referred to several English precedents.
Unlawful object The undertakings made by the state government prejudice the issues of grant of necessary license, consent orders and permits to the company. These decisions will be made on the basis of the contractual mandate of the MoU. In fact, the grant of such permits has been rendered a fait accompli by this MoU. As such, the MoU stands in contravention to the established principles of administrative law. More problematically, there is a real danger of the state government finding itself bound to the promises made in the MoU, particularly if the company acts upon the promises made therein. As such, the state government may becompletely bound by the promises held out in the MoU and the contractual obligations will completely displace the statutory mandate vested in it. It must be noted in this context that one of the general principles of contract as postulated in Section 23 of the Indian Contract Act says that the consideration or object of an agreement is unlawful if it is forbidden by law; or is of such nature that, if permitted it would defeat the provisions of any law. Every agreement of which the object or consideration is unlawful is void. Admittedly, a MoU is not strictly speaking a contract and nor are the promises made by the state governments in the nature consideration in true sense of the term. At the same time, an MoU is indeed an agreement that would shape the contours of the final contracts on each specific issue discussed in the MoU and consequently, the fundamental principles of contractual laws must still very much be applicable to it. Therefore, it may be argued that the current MoU contains clauses that contravene the legal principles guiding the exercise of administrative discretion and, thus, the objects of this agreement are unlawful. Consequently, such an agreement can be said to be a void agreement in so far as they fetter and displace administrative discretion vested by statutes by creating a conflict of interest.
Judge in its own cause
These clauses also create a scenario where the state government, being an interested party due to its part in the MoU, judges its own cause while granting necessary permits under the different environmental laws. This is a complete inversion of the fundamental principle of natural justice which affirms that no one shall be a judge in his or her own cause. It is an unexceptionable rule of law that justice must not only be done but also must be seen to have done. The MoU and the promises of the State Government made therein completely shatter the objectivity of the state government and create a very strong apprehension of bias.
Clash of interest MoU also avers that the state government shall recommend to the central government setting up of SEZ as required by POSCO. Ideologically, setting up of SEZ and its appurtenant privileging of corporate interests over basic rights of the people, creation of anti-people and anti-labour enclaves that are bereft of any form of democratic control is unconscionable and must be resisted at all costs. But the specific clause in this MoU even falls foul of the limited norms of the SEZ Act. As already argued earlier, it is well established in law that the state government must apply its mind objectively and with reference to the objectives and provisions of the Act and make its recommendations. However, this MoU clearly fetters the state government's power to make independent recommendations and substitutes its discretion with contractual obligation towards POSCO and thus deprives the provision of state government's approval of itsentire substance and meaning.
Special treatmentThe MoU states that Orissa government will assist POSCO in establishing suitable contacts and interfaces with the Indian government for POSCO's requirement for 400 MT of iron for its steel plants in Korea. This being a market transaction, there is no reason why the state government must interfere in it by providing special assistance to POSCO when the company can purchase its requirements from the open market.
Militarisation of the region
Clause 17 of the MoU states that the state government shall be responsible for the security of the project and take all steps including setting up of new police stations. This insidious provision highlights the state-corporate nexus that has acquired a lethal shape in this neo-liberal era. The state is increasingly becoming just a sentinel guarding the penetration of the mineral rich regions of the country by the global capital and is abdicating its functions of honouring and protecting the fundamental, political and socio-economic rights of the indigenous people and other citizens. This is an acknowledgement of the role of the state in repressing popular movements and resistance against mega projects as being witnessed in Kashipur and in Kalinganagar.
Writers are members of Delhi Solidarity Group
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