Jindal Steel seals $2b Bolivian deal

NEW DELHI: After nine months of hectic negotiations, the Naveen Jindal-led Jindal Steel & Power (JSPL) has reached an agreement with the government of Bolivia to develop half of El Mutun iron ore mine — one of the world’s largest— and invest $2.1 billion to set up a steel plant in the Latin American country. This would be the biggest ever investment in a single project in Bolivia. The two sides will sign a definitive contract within 45 days.

JSPL will use the iron ore reserve to manufacture steel in Bolivia. While work on the plant is expected to commence by the end of this year, actual production would start only by 2010. Revenues, too, will start flowing in only by then. Asked whether he plans to import a part of the mined ore for making steel in India, JSPL executive VC Naveen Jindal said: “We will not bring any ore into India. The ore will be used for making steel in Bolivia.”

The JSPL stock closed at Rs 2,343.6 at the BSE, down 0.35% compared to its closing price on Thursday. Though JSPL had emerged as the sole bidder to develop 50% of the El Mutun iron ore mine in June 2006, the final agreement was pending as the two sides were not able agree on terms of the contract.

As per the final terms of the contract, JSPL will be charged $3.91 per million BTU for steel manufacturing, and $1.955 per million BTU for gas used for power generation. JSPL was asking for gas at $2.1 per million BTU. Bolivia, which has rich natural gas resources, is charging $4-$5 per million BTU for other gas supply contracts. The Bolivian government had set a deadline of February 28 to decide the fate of the project.

Mr Jindal said: “It’s a big development and one of the best combinations possible — with low natural gas price and abundant iron ore reserves. In most other locations in the world, one can expect either of the two, but not both.”


Talking about financing the investment, JSPL director, finance, Sushil Maroo said: “We will be looking at a debt-equity ratio of 60:40. However, we are not looking at any equity dilution at this stage. The investment will be rolled over eight years and, as of now, we will be primarily banking on our cash flows for the equity portion.” El Mutun is said to have reserves of about 40 billion tonnes of iron ore. JSPL, which will have access to half of it, will invest $2.1 billion over eight years.

The investments will involve an integrated steel plant with a capacity of 1.7 million tonnes per annum (TPA) of long steel products, a sponge iron plant with a capacity of 6 million TPA and a pellet plant with a capacity of 10 million TPA. In addition, it will also be setting up the supporting infrastructure, which will include a 450 MW power plant.