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.

FILE PHOTO: The ILVA steel plant is seen next to the Tamburi district, in Taranto, southern Italy April 27, 2018. REUTERS/Tony Gentile/File Photo

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 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 Italy. Thousands more jobs are indirectly tied to the site.

The government’s promised legal shield would have given ArcelorMittal immunity from possible costly prosecution related to a planned clean-up at the plant, which has been blamed for hundreds of cancer-related deaths in recent years.

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. Parliament ditched the shield effective 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 said the company would start shutting down the plant’s furnaces and hand back the firm within 30 days.

FIG LEAF

Government officials met Prime Minister Giuseppe Conte to discuss the situation, which could generate major friction within the coalition between 5-Star and its centre-left partners, the Democratic Party and Italia Viva.

Industry Minister Stefano Patuanelli accused ArcelorMittal of hiding behind a fig leaf and said the government would not allow the Taranto plant to close and would guarantee production.

“The legal shield is clearly an alibi because it has nothing to do with the production process,” he told reporters, calling on the steelmaking giant to respect last year’s deal.

A government source said Rome believed the shield was an alibi because the Ilva plant loses 2 million euros ($2.2 million) a day. But the source said the ruling coalition parties were considering ways to revive some form of legal guarantee.

In a tweet, Conte said he would meet ArcelorMittal management on Tuesday afternoon to try to safeguard investment and jobs and press ahead with the clean-up plans.

The opposition far-right League said the prime minister would have to 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.