Jindals wrap up Bolivia deal

After eight months of negotiations with the Bolivian government, Jindal Steel & Power Ltd (JSPL), part of the Rs 20,000 crore Jindal Group, today finalised a historic agreement to invest $2.1 billion (Rs 9,500 crore) to exploit the famed El Mutun iron ore mines and set up a new 1.7 million tonne steel plant.

Under the agreement, JSPL will also set up a six million tonne sponge iron plant and a 10 million tonne pellet plant. The El Mutun iron mines have 40 billion tonnes of medium-grade ore, making them one of the largest reserves in the world.

Bolivian President Evo Morales and the Jindals' senior management have agreed on the tax rate and natural gas prices for the iron and steel project and will sign a definitive contract within 45 days. The final agreement was repeatedly delayed over the price to be paid by JSPL for the natural gas that will be used for steel making.

"The debt equity ratio would be 60:40 and the other financial modalities are being worked out. The agreement would help us as the Jindals wanted a subsidised price for fuel and better tax conditions," said Sushil Maroo, director, finance, JSPL.

Bolivia has agreed to sell JSPL natural gas at $3.91 per million BTUs (British thermal units) for steel making, which represents 70 per cent of the project's energy needs. JSPL will pay $1.955 per BTU for gas for power generation, which accounts for 30 per cent of the energy needs. JSPL had originally offered $2.1 per BTU for the natural gas it would need at El Mutun.

To produce at least 1.5 million tonnes of steel a year, JSPL will build a 450 MW power plant near the El Mutun deposits. JSPL, which won the bid in June last year, will be allowed to exploit 50 per cent of the El Mutun reserves.

JSPL said it would create 4,600 direct jobs at the facilities, which are to be located in the south east of Bolivia, about 50 km from the Brazilian border.

The Bolivian government expects to receive some $200 million a year in profit sharing and taxes from the 40 year concession agreement allowing JSPL to exploit the El Mutun mines.