Jindal Steel's Bolivia plans run into a royalty wall

MUMBAI: Jindal Steel and Power’s (JSPL) mega dream of becoming one of the world’s biggest iron ore producers has been delayed after the Bolivian government, demanding higher royalty, put on hold its approval for the $2.3-bn development of the El Mutun iron ore mines in that country.

JSPL, on June 2, had announced an initial deal with the Bolivian government to develop a 1.7-m tonne steel plant, a 6-m tonne sponge iron unit and a pellet-making plant with a capacity of 10m tonnes at El Mutun. The mines have iron ore reserves of 40bn tonnes, one of the largest in the world.

The project’s implementation would have made the Naveen Jindal company into a global force in the iron ore mining space. The final agreement with the Bolivian government was scheduled to be signed by end-July. But that deadline has already passed and uncertainty looms over the project now.

“The (Bolivian) government won’t take a decision (on the Jindals’ project) until we can guarantee more earnings for the state,” Bolivia’s planning minister Carlos Villegas is reported to have said, according to agency reports.
Mr Jindal and Vikrant Gujral, CEO, JSPL are in Bolivia trying to resolve the differences. “A final decision on the project will probably be taken by the end of this week,” a JSPL official added.

If the deal falls through, JSPL will have missed a rare opportunity to cash in on soaring iron ore prices. The prices have surged in recent times mainly due to large scale imports by steel users like China. This year itself, world iron imports are estimated at 753m tonnes, of which 353m tonnes will be bought by China.

Shares of Jindal Steel & Power fell by 1% to Rs 1,521.7 at the BSE on Thursday. The development also underscores the dangers and uncertainties Indian companies face when bidding for or buying large projects in poor countries wracked by political and economic volatility.

Tata Steel, the country’s largest private sector steel player, recently had to put on hold its $3.2-bn project in Bangladesh after the government failed to give clearances. Oil companies have faced many challenges in war-torn African countries. ONGC, which bought into an oilfield in Sudan a few years ago, still finds the going rough.

Sources close to the development said the project looked uncertain from the beginning due to the constant revisions in the agreement. Initially, the Bolivian government had wanted 2.5m tonnes per annum of iron ore to be mined and 54% of the net income from the operations .

They subsequently stipulated a royalty of 8-9% for iron ore, 10% for concentrate and also levied a duty of 7% on export of sponge iron and 5% on the export of steel. Royalty is a charge given by the miner to the owner of the land on which the mining is undertaken.

Bolivia’s new president Evo Morales, who created a sensation earlier this year when he sported a traditional Indian attire for his swearing-in ceremony, recently launched a drive to nationalise natural resources.

International reports say he recently took over oil and gas fields to force companies to renegotiate contracts to pay higher royalties. The Bolivian government is also reported to have ordered Brazilian energy company EBX Group, to leave Bolivia on allegations of environmental rules violation.