POSCO Withdraws its FINEX Steel Mill Project from Iran

POSCO E&C Withdraws its Steel Mill Project from Iran amidst Political Tensions between Saudi Arabia and Iran

In May’16, South Korea’s POSCO Engineering & Construction (E&C) signed a USD 1.6 billion agreement with the Iranian steelmaker, Pars Kohan Diar Parsian Steel (PKP) to build a steel mill incorporating the company’s proprietary FINEX technology in Iran’s Chabahar Free Trade-Industrial Zone.

This project involved export of technology and POSCO’s investment in this project is estimated to be about USD 128 million which is 8% of the total budget.

Recent Happenings

In a recent update, POSCO E&C has stopped its investment deal in Iran’s steel industry and has withdrawn from a project to construct a steel mill in Iran.

According to the reports, the company’s decision is believed to be influenced by the Saudi Arabian directors that were elected as outside directors after the POSCO E&C sold a 38% stake (worth USD 1.1 billion) to the Public Investment Fund (PIF) and Saudi Arabia’s Sovereign Wealth Fund in Sep’15.

Iran-Saudi Arabia relations have strained following an attack on Saudi Arabia’s Embassy in Tehran in 2016. Both the countries ‘relations are increasingly fraught with hostility, tension and confrontation, due to differences in political agendas that are strengthened for their differences in faith.

While a memorandum of understanding (MOU) was signed among POSCO, POSCO E&C and PKP in September 2015, a memorandum of agreement (MOA) was signed by the companies in Feb’16 to construct the integrate steel mill in two phases commencing from Mar’17. This MOU was completely evaluated as a part of practical implementation of the project.

However, POSCO E&C has cited un-feasibility of the project as main reason for its withdrawal from the project. This has raised serious doubts about PIF’s outside directors’ influence on POSCO E&C withdrawal decision.

While POSCO E&C has backed out of the project, its parent organisation, POSCO has mentioned that it will continue negotiating the export of the project and FINEX engineering method related to the construction of the FINEX steel mill in Iran. This is because unlike POSCO E&C, POSCO does not have any outside directors with a connection with Saudi Arabia.