After months of bickering and verbal volleys, the $ 2.1-billion (Rs 11,550 crore) Bolivian project of Jindal Steel and Power Ltd (JSPL), the most ambitious overseas steel project of an Indian company, is now officially stalled, thanks to differences between the Bolivian government led by Leftist President Evo Morales and the Naveen Jindal-promoted steel maker.
Confirming the development, Sushil Maroo, deputy managing director and director (finance), JSPL, told Business Standard the company did not want to talk about future viability of the project any more. A JSPL team, posted in the project site in the Latin American country, is in the process of coming back to India, said company officials aware of the development.
“We are not getting the gas supplies required for the project and the Bolivian government is encashing the guarantees we gave for the project. If there is no gas, how can we start the project? Hence, it is stalled right now,” said Maroo, adding: “We can’t do anything about it.”
| STUMBLING BLOCKS |
| 2007: JSPL and Bolivia sign $2.1 billion agreement to develop El Mutun mines |
| 2010: Bolivia threatens cancellation of contract if JSPL does not adhere to signed investment schedule |
| 2010: Both parties hold talks to chalk-out an agreeable solution |
| 2011: JSPL starts the project, places orders worth $583 million |
| 2012: The project gets stalled indefinitely because of delays and non availability of gas |
JSPL and the Bolivian government are locked-in a court battle in the International Court of Justice over encashing of the $18 million corporate guarantee furnished by the company. The project for the last two years has been engulfed in controversy.
In 2007, JSPL and the Bolivian government had signed a contract whereby the company was to invest $2.1 billion in developing half of the 40-billion-tonne iron ore reserves in El Mutun. This is one of the largest iron ore mines in the world and JSPL had edged out the top steelmakers in the world to secure the contract. Other projects in the contract included a 1.7-million-tonne-per-annum (mtpa) steel plant, a 6-mtpa sponge iron plant, a 10-mtpa iron ore pellet plant and a 450-Mw power plant.
In March, this newspaper had reported the company had asked a couple of months’ time from its investors for an update on the project’s future. The Bolivian government had scheduled an audit on the project in May.
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The stock market and investors, however, see this as a boon. According to Ritesh Shah, metals and mining analyst with Espirito Santo Securities, the investors have already factored in the cancellation of the project. “The company has invested around $150 million in the project which is not huge considering the total size of $2.1 billion. There will be no price impact on the stock, but a sentimental impact will be a definite,” Shah said.
The stock price of JSPL closed at Rs 454.15 on Monday, down by half a percentage point against the BSE Sensex that rose 1.23 per cent on Monday.
Ravindra Deshpande, metals analyst at Elara Securities (India), said: “Such huge projects are not counted when valuing a company till the time cash-flows start trickling-in as the future of such projects is largely uncertain. Even this project was in clouds for the past two years. Hence, we don’t see any negative impact on the financials of the company.”
But the project was a jewel for JSPL. The largest mining concession ever granted by the Bolivian government could have given JSPL a foothold in the fast-growing Latin American steel market. The company, apart from mining 20 billion tonnes of ore, had the go-ahead to export half of it. And given the volatile iron ore prices, the battle between steel and mining companies to secure any possible raw material source, this resource was a major boost to JSPL’s raw material security.
The company had also signed contracts worth $583 million with various companies, including Midrex for a 2.5-million-tonne steel mill, for the project. “We are reviewing the situation and the contracts. It would be difficult to comment on the same at the moment,” said Marooo, while explaining the impact.
The cracks between the two parties emerged as early as 2010 when the Bolivian government threatened to cancel the contract if the Indian company did not adhere to the signed investment schedule. According to the pact, JSPL was supposed to invest $300 million for first five years and $200 million for the next three years.
However, due to the economic uncertainties surrounding the global investment cycle at the time, JSPL asked for renegotiation of the investment schedule which was shot down by the government of President Morales.
JSPL is not the only Indian steel company that has suffered in the foreign acquisitions. Essar Steel’s Zimbabwe buy of Zimbabwe Iron and Steel Co (Zisco), too, ran into rough weathers and the planned acquisition of Zisco’s iron ore mining company is also under clouds. Zisco, now Essar Steel Zimbabwe, has a million-tonne steel plant and multi-billion tonnes of iron ore reserves under Buchwa Iron Mining Co — now NewZim Minerals Pvt Ltd.