Lessons for companies that acquire land for huge projects

The fallout of the strife between locals occupying tiny parcels of land in sparsely populated hamlets and investors is project delays and cost escalation. 

Many Indian and foreign groups with plans to build large steel mills, aluminium smelters and open-pit mines have a frustrating experience in land acquisition.

In many cases, the local people, mostly tribals, who would have to make room for multi-billion dollar projects have turned hostile.

This is because the promoters have not proved they mean well for the community.

Kalinganagar in Odisha has witnessed many violent protests - including the killing of a dozen tribals in police firing on January 2, 2006 - over acquisition for a large steel and coal-fired power capacity coming up there. 

The fallout of the strife between locals occupying tiny parcels of land in sparsely populated hamlets and investors is project delays and cost escalation. 

Take Tata Steel, almost ready with the first phase of the six-million tonne (mt) project at Kalinganagar.

Its officials will have no compunction in admitting the group's attempt at acquiring 3,000 acres for an integrated steel mill - ahead of building sustainable communication with the local people and earning their trust - was responsible for many stand-offs, setting the project back by five years. 

The company has enormous goodwill at Jamshedpur, built over a century, where its 10-mt mill stands as testimony to Jamsetji Tata's belief that the "community is not just another stakeholder in business but is in fact the very purpose of its existence".

However, at Kalinganagar, the steelmaker has realised that goodwill will have to be built all over again when it goes to a new centre.

Acquiring a few thousand acres to host a large steel mill or an aluminium smelter by convincing the locals that such projects will be beneficial for them through friendly dialogue is a better option than a confrontational approach. Jamsetji Tata did not live to see Tata Steel making steel. 

However, he had the vision to tell his son Dorabji Tata, that in building the Jamshedpur township, he must make sure "to lay wide streets planted with shady trees... Earmark areas for Hindu temples, Mohammedan mosques and Christian churches."

Remember, the advice came well over a century ago, when, without government-ordained allocation of a small portion of profit to discharge corporate social responsibility (CSR), some industrialists would generously spend money for community welfare. 

The important thing is whether industrial groups will be ready for course correction after making costly mistakes.

Fortunately, Tata Steel has decided to shun the Kalinganagar model as it explores growth opportunities elsewhere in the country. Its managing director, T V Narendran, says Kalinganagar gives the message that well ahead of venturing into a new site with a big project, the investor should start building trust with the local community.

Therefore, Tata Steel is engaged in doing "some work" for local confidence building to get a smooth passage at potential sites in Chhattisgarh and Karnataka.

When the time comes for land acquisition and thereafter building the plant, the community in surrounding areas is more likely to be supportive, instead of being suspicious as was the case with Kalinganagar. 

State-owned National Aluminium Company (Nalco) has no Kalinganagar-like experience. However, as chairman Ansuman Das says, "I'm clear in my mind that whenever we plan a major investment beyond where we already are, we must enlist the support of local people by investing in their welfare.

How good a corporate citizen we are is known in Odisha because of the extensive community welfare work we are doing at Angul, where we have our smelter, Damanjodi, the site of our alumina refinery, and at Panchpatmali hills where we mine bauxite. We will be fooling ourselves if we think the goodwill earned in Odisha will make us automatically acceptable in other states." 

A few years ago, Nalco was allotted bauxite deposits of around 90 mt at Gudem and Katamraju Konda in Andhra Pradesh to build a 1.4 mt refinery.

Being disturbed areas where extremists have a free run, no one knows when Nalco will be in a position to open bauxite mines there.

However, this has not stopped Nalco from doing 'soft' CSR work at Gudem and Katamraju Konda, such as bringing water to village hamlets from nearby streams. 

Seeing Nalco's well-meaning efforts to help the local people, even the extremists have stopped demurring.