Finally JSPL has started to pull itself out from its Bolivia investment. As a first step, the company has shut down its iron ore mine in that region.
Finally JSPL has started to pull itself out from its Bolivia investment. As a first step, the company has shut down its iron ore mine in that region. However, talks are still going on with the Bolivian government to rescue a joint venture aimed at developing a local steel industry. A company spokesperson, in a statement given to the media, has stated that the company has sent out letters to the employees and suppliers notifying the termination of the contracts. This was done as the Bolivian government hasn’t provided the necessary assurances to make it decide to stay on.
In 2007, the company had got into an agreement with the Bolivian government for iron ore mining in the region, which holds reserves of 20 billion tonnes. Along 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 with an investment of USD 2.1 billion.
However on the back of issues with the government related with the shortfall of gas supply it has planned to scale down its planned capacity. The issues seemed to be with both the parties as the Bolivian government has accused the company stating that it has failed to invest enough money whereas company says that the government has failed to provide the energy and infrastructure needed to move the project ahead. 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.
The Bolivian government is also alleged to have seized a USD 36 million cash guarantee given by the company stating that it has failed to comply with the obligation to pay USD 600 million over the stipulated period of two years and has paid only 2 per cent of the planned investment amount. 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 per cent of the profits and the remaining 55 per cent will be taken by the government in order to compensate the people located near the mining region. This new policy will adversely impact JSPL’s planned investment and business viability in Bolivia.
In a statement given to one of the media, Jindal’s executives have said that leaving Bolivia would not lead to any major loss to the company but it would affect its plans to establish a strategic presence in South America. However, we believe this will have a major impact in terms of the cost incurred in the initial developments on the iron ore mine. Further, the impact of the ongoing rift between the company and the Bolivian government can impact the expansion plans of setting up the 1.7 MTPA steel plants and 6 MTPA sponge iron and a 10 MTPA iron ore pellet plant.