By Giuseppe Fonte and Crispian Balmer
ROME (Reuters) - ArcelorMittal <MT.AS> said on Monday it was withdrawing from a deal to buy struggling Italian steelmaker Ilva after Rome reneged on a promise to give it immunity from prosecution over its heavily polluting plant.
The decision represents a blow to Italy's ruling coalition, which had hoped to dissuade the steel giant from pulling out of the contract, and will raise further questions about the country's reliability as a partner for foreign investors.
ArcelorMittal reached a deal last year to buy Ilva, which is based in the southern city of Taranto and employs 8,000 workers in a region with one of the highest unemployment rates in the country.
The government's promised legal shield would have given ArcelorMittal immunity from possible costly prosecution related to a clean-up plan for the plant, which has been blamed for hundreds of cancer-related deaths in the area.
However, Italy's ruling 5-Star Movement has opposed handing the firm legal carte blanche, saying it was unfair to Taranto locals whose health might have suffered because of the steelmaker, and parliament ditched the shield, effective from Nov. 3.
"It is not possible to manage the plant without this protection, and it is not possible to expose employees and contractors to potential criminal charges," Lucia Morselli, the CEO of ArcelorMittal's Italian unit, wrote in a letter to staff.
She added that the company would start shutting down the plant's furnaces.
Industry Minister Stefano Patuanelli met Southern Affairs Minister Giuseppe Provenzano and Environment Minister Sergio Costa on Monday to discuss the situation.
A government source said the coalition would not let the plant close, adding that the ministers did not believe ArcelorMittal had the right to renounce its contract.
The opposition far-right League said Prime Minister Giuseppe Conte should resign if the firm did indeed pull out of Ilva, which is one of Italy's largest industrial concerns.
"If the government ... forces the owners of Ilva to flee, putting at risk tens of thousands of jobs and the industrial future of the country, it will be a disaster," League leader Matteo Salvini said in a statement.
At its peak, Ilva produced more than 10 million tonnes of steel a year, but output halved after magistrates intervened in 2012 and said it had to be cleaned up or shut down. Ilva was placed under state-supervised special administration in 2015.
When it agreed to buy the plant, ArcelorMittal said that with its know-how, it could turn around the loss-making business and promised to sink billions of euros into the company.
(Reporting by Crispian Balmer and Giuseppe Fonte; Editing by James Mackenzie and Susan Fenton)
