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NEW DELHI – India's environment ministry Friday insisted it would revoke Jindal Steel & Power Ltd.'s environmental clearance for its proposed $6 billion plant in the state of Orissa unless the company provided sufficient evidence it has not breached the terms of the agreement, raising questions on the future of the plant.

In a statement released Friday , the ministry said that Jindal Steel breached the terms of the 2007 clearance agreement which said the company was not allowed to to build anything in the 162 hectares of forest land included in the project area.

But local officials in India's state of Orissa, where the plant is located, recently said that construction activity, such as building of roads and storage facilities, is taking place in the forest area.
The statement added that the ministry issued a show-cause notice to Jindal Steel on Nov. 22, to which the company has 15 days to respond to.

But Sushil Maroo, Jindal Steel's chief financial officer, told Dow Jones Newswires that the company hasn't yet received a show-cause notice.

"We haven't violated any environmental laws. Our project has both environmental and forest clearance," Mr. Maroo said. However, he added that some "minor infrastructure work" may have taken place on the forest land.

Jindal Steel shares tumbled on news, plunging 8.7% during the day before settling 2.19% lower in a market down 1% on Friday.

Jindal Steel's proposed 6-million-ton-a-year steel plant in the town of Angul is the fourth major project to face challenges in the mineral-rich state of Orissa.

Vedanta Resources PLC's proposal to mine Orissa's remote Niyamgiri Hills for bauxite was recently rejected by the environment ministry, fearing it would damage the local ecology and that it would affect the local Dongria Kondh tribes who live in the hills.

Steel projects by ArcelorMittal, POSCO and Tata Steel Ltd. proposed in the past five years failed to take off for reasons including environmental legislation, tribal rights and protests by local landowners.
If Jindal Steel's clearance is revoked, it would be a major setback for the ambitious expansion plans of the country's fourth-largest domestic steel producer.

Jindal Steel and peers such as Tata Steel and JSW Steel are trying to get large-scale steel projects started as soon as possible to take advantage of the country's growing steel demand, which is expected to rise over 10% annually for the next ten years.