JSPL Finally Pulls Out Investment Of USD 2.1 Billion From Bolivia

Jindal Steel & Power Ltd, a Jindal Group company engaged in steel and power production, has finally terminated its contract with the Bolivian government worth an investment of USD 2.1 billion. As mentioned in our earlier updates, the company was facing serious problems with the Bolivian government in terms of fulfilling the contract terms and conditions. As per a company press release, it sent a letter to the Government of Bolivia on June 8, 2012 conveying its intention to terminate the contract due to non-fulfillment of the contractual obligations on the part of the Bolivian government. It was supposed to be the largest foreign investment in Bolivia,. The move was taken since discussions on this issue had not led to any resolution.

The company in 2007 got into an agreement with the Bolivian government for iron ore mining in the region. 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.

The problem started when the Bolivian government failed to fulfill its commitment as per the contract terms to provide energy and infrastructure needed to move the project ahead. The government also failed to sign an agreement for the supply of natural gas required for the project - 10 million cubic meters per day within 180 days of signing of the contract. The same has not been signed till date. The company has also filed a case against the government in the International Court of Arbitration over a financial dispute.

The termination came after company has invested more than USD 90 million in this project and has made commitments exceeding USD 600 million till March 2012 for purchase of technology, machinery and other equipment and advances to vendors.

With the termination of the contract the company will face not any major loss. However, it would affect its plans to establish a strategic presence in South America.

Meanwhile, the company will announce the June quarter result on July 24, 2012. We expect the company to report decent result on the back of the improvement in its steel business. The steel business will drive the topline of the company mainly on account of the rise in realisation and decent volume growth. However, the bottomline and margins of the company may remain under pressure due to high input cost of power, freight and depreciated rupee value.