Jindal Steel’s Bolivia Plant Weighed Down By Problems

Jindal Steel and Power (JSPL), which was looking to set up a steel and pallet plant in Bolivia, is planning to scale down its planned capacity on the back of issues related with the shortfall of gas supply. As per a media report, JSPL requires 4.5 mcmd (million cubic meters of gas) for its Direct Reduced Iron (DRI) steel plant. However, the Bolivian government has offered only 2.5 mcmd of gas, which is far below its actual requirement. Due to this, the company may have to plan its investments again. JSPL's project is considered to one of the largest made by an Indian entity in South America. It is also the highest investment made by a foreign firm on a single project in Bolivia.

In 2007, the company got into an agreement with the Bolivian government for iron ore mining in the region, which holds reserves of 20 billion tonnes. With this, the company also signed an agreement to set up an integrated 1.7 million tonnes per annum (mtpa) steel plant, a 6 mtpa sponge iron and a 10 mtpa iron ore pellet plant in the country at an investment of USD 2.1 billion.

However, after signing the agreement with government, the path ahead was not easy as the Bolivian government was not happy with the progress of the company to set up the plant. The dispute reached its height when the government threatened to take back the mining rights. This was not the last instance, as in Oct 2011, the Bolivian government again pulled up the company for dragging on the investment schedule and threatened to cancel the agreement. The government also seized a USD 18 million guarantee given by the company stating that it has failed to comply with the obligation to pay USD 600 million over the 2 years and has paid only 2% of the planned investment amount.

JSPL, on the other hand, is asking the Bolivian government that it must ensure the allocation of the required supply of natural gas to operate the mining site as per the contract. The company has also filed a case against the government in the international court of arbitration over a financial dispute with regard to the USD 2.1 billion mining project.

Further, the Bolivian government is planning to impose a new policy for mining in the country, under which the mining companies will get only 45% of the profits and the remaining 55% will be taken by the government in order to compensate the people located near the mining region. This new policy will adversely impact JSPL planned investment and the business viability in Bolivia.