The state government has finally terminated the Memorandum of Understa-nding with Brahmani Industries Limited for setting up an integrated steel plant in Kadapa district, stronghold of the YSR family.

Former Karnataka minister Gali Janardhan Reddy, owner of Obulapuram Mining Company (OMC), had proposed building the steel plant when YSR was the chief minister, and got mining leases for iron ore in Obulapuram. He is pre-sently lodged in a Bengal-uru jail in connection on charges of illegal mining.

On Thursday, his last day in service, industries and commerce principal secretary T.S. Appa Rao issued orders terminating the MoU and cancelling all the incentives the government had assured the developer.

The GO said the validity of the MoU, which was entered into on May 21, 2007, expired on May 20, 2010, and the government has decided to cancel GOs relating to industrial incentives besides terminating the MoU.

The department sought to justify the termination on the grounds that the promoter failed to fulfil the commitments made under the MoU.

Brahmani focused on mining iron ore

The state government, when YSR was the chief minister, gave 13,800 acres for the steel plant and an airport to Brahmani Industries Limited. It also agreed to provide two tmcft of water and help the company obtain all necessary clearances from Central government departments.

In a lengthy Order, the department sought to justify the termination on the grounds that the promoter failed to fulfil the commitments made under the MoU. As per the agreement, BIL should have completed the first phase of the project with production capacity of two million tonnes by 2009.

Instead of focusing on the plant, the promoters chose to mine iron ore in Obulapuram. The project ran into rough weather following the death of YSR. The subsequent K. Rosaiah government stopped mining by OMC and handed over investigation into the illegal mining to the CBI.

The state government also found that the company mortgaged the land allotted to it for setting up the plant and raised Rs350 crore from Axis Bank.

On being served a show-cause notice, BIL said it created infrastructure spending Rs1,350 crore, but the valuation of work in progress by the state government appointed technical committee revealed that only about Rs170 crore was actually spent.

The industries department also obtained the view of law, irrigation, mines and other relevant departments before terminating the MoU.

Interestingly, BIL expressed helplessness in mobilising funds stating that the ongoing CBI probe into its promoters would prevent any financial institution from arranging funds for the project. It also sought to blame the delay in constructing the Gandikota reservoir from which the water is supposed to be supplied to the proposed steel plant.

The decision to terminate the MoU came a day after Chief Minister N. Kiran Kumar Reddy categorically said that any decision on controversial projects at this juncture may influence investigation.

Sources said industries minister J. Geeta Reddy, who was part of the decision-making process and facing Supreme Court notices had pressurised the Chief Minister to cancel the project.