WSJ: Jindal Steel Still in Talks With Bolivia

July 6, 2012 7:18 amComments OffViews: 1

NEW DELHI — Jindal Steel & Power Ltd. and the Bolivian government are still in talks to see if the Indian company’s $2.1 billion mining and steel-manufacturing venture can be salvaged, a senior executive said Friday.

“Some discussions are going on. It’s too early to say what will come of it,” Vice Chairman Vikrant Gujral said, adding that more details will be available next week.

But if no solution is found by Sunday, Jindal may make good a threat to call it quits in Bolivia, a decision that would be a major disappointment for the company.

Faced with a severe industry-wide shortage at home, Jindal had planned to use iron ore mined from Bolivia’s mineral-rich El Mutun area to feed its steelmaking operations in India.

But the program ran into one roadblock after another, with wrangling between the Bolivian government and Jindal coming to a head in early June with the Indian company serving a termination notice which will expire Sunday.

Mr. Gujral’s comments come a day after The Wall Street Journal cited Jindal’s chief legal counsel in Bolivia, Jorge Gallardo, as saying that negotiations had stopped due to legal problems, and that cancellation of the project is “imminent.”

The case revolves around disagreements over land and the supply of gas to Jindal’s proposed projects in Bolivia.

In 2007, Jindal Steel entered into an agreement with the Bolivian government to develop the El Mutun mines, and to set up a plant to process iron ore and build a steel factory with an annual capacity of 1.7 million metric tons.

Bolivian President Evo Morales showcased the project as an example of how his government and multinational companies could work as equal partners.

But the program soon ran into trouble, with the government accusing Jindal of not meeting its investment schedule and Jindal arguing that the government has failed to provide the gas and infrastructure necessary to move the project ahead.

The Bolivian government says it can’t provide the 10 million standard cubic meters a day of natural gas that was originally agreed upon. It offered just 2.5 MMSCMD instead.

Jindal has tried to renegotiate the contract, asking that it be allowed to reduce its investment commitment and build smaller steel and iron jindal0706

ore processing plants.

The Bolivian government has refused, choosing instead to encash $36 million of bank guarantees given by Jindal.

The guarantees issue is now in the International Court of Arbitration.

Jindal officials had earlier said the company has spent $90 million on the project so far, including the forfeited bank guarantees. It also had investment commitments exceeding $600 million till March 2012 for the purchase of technology, machinery and other equipment, as well as in advances to vendors.

Work on the Bolivian project has been suspended since June 8, when Jindal sent its termination notice.

A Jindal executive, who didn’t wish to be named, said earlier that while its experience in Bolivia has been a dampener, one good thing is that the company managed to get together a team which could help scout for coal and iron-ore mines in South America.

Many large private sector steelmakers in India have acquired at least a few iron ore or coal mines overseas and are continuing to hunt for more. This is because getting mining leases in India is difficult with environmental clearances hard to come by, and mines tied up in multiple litigations.

Mines in countries with mature resource-based economies, such as Australia and Indonesia, are expensive and not readily available, forcing some to look to other countries such as Bolivia.

El Mutun is a vast iron ore deposit on Bolivia’s border with Brazil, and is estimated to contain 40 billion tons of ore.

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