POSCO E&C Decides to Withdraw from the Project to Build FINEX Steel Mill in Iran

It has been found that POSCO E&C decided to withdraw from a project to construct a steel mill in Iran. Some experts argue that relationships between Saudi Arabia and Iran which severed their diplomatic ties in January 2016 had an impact on the project.

The Financial Tribune, an English-language economic daily in Iran, reported that two outside Saudi Arabian-born directors of POSCO E&C expressed a negative opinion on the implementation of the steel mill construction project. In September 2015, POSCO E&C sold a 38% stake worth US$1.1 billion to the Public Investment Fund (PIF), Saudi Arabia's Sovereign Wealth Fund, and elected two officials of the fund as outside directors. The two directors took issue with the project, prompting POSCO E&C to give up the project.

On January 29, a POSCO E&C representative confirmed to BusinessKorea that the company decided to bring a halt to the project after judging that the project was not feasible during a feasibility study on the construction of a FINEX steel works in Iran. "The outside directors from the PIF did not affect the project," he said.

The POSCO’s project costs a total of US$1.6 billion. POSCO intended to build the steel mill based on FINEX technology of its own development in Iran. It was expected that POSCO would transfer the technology and receive a certain level of sales as technical loyalties. This project is a kind of technology export and POSCO's investment in this project runs to about US$128 million which is 8% of the total budget.

To this end, POSCO signed a memorandum of agreement (MOA) to construct the FINEX integrated steelworks in a free trade-industrial zone in Chabahar in the southeast of Iran with Iranian steelmaker PKP in February 2016. At the time, this memorandum was evaluated as part of the practical implementation of the project since the MOA was signed after the signing of a memorandum of understanding (MOU) among POSCO, POSCO E&C and PKP in September 2015. According to the MOA, the three companies agreed to build the integrated steel mill in two phases by commencing construction in March 2017.

In the first place, POSCO E&C would take charge of the construction of the steel mill and related facilities in this project, but decided not to participate in the project because the builder judged the project not feasible. As POSCO E&C decided to take over construction work at the time of the MOA, ballooning expectations for the creation of synergies in the POSCO group, a lot of attention was paid to the background of the abortion of this project.

Though POSCO did not clarify the issue, the Korean steelmaker said reportedly it will continue negotiating the export of the project and FINEX engineering method related to the construction of the FINEX steel mill in Iran. Unlike POSCO E&C, POSCO does not have any outside directors with a connection with Saudi Arabia. Therefore, the perspective is gaining ground that the outside directors from the PIF influenced POSCO E&C's withdrawal from the project.