Consortium for Afghanistan mine in trouble,Tatas pull out

The Tata Steel board reportedly could not make up its mind despite meeting twice.

Barely days after state-owned companies SAIL,NMDC and RINL stitched together a consortium with private sector biggies Tata Steel,Sajjan Jindal-promoted JSW Steel and Navin Jindals Jindal Steel and Power Ltd (JSPL) to bid for the Hajigak mines in Afghanistan,the Tatas have pulled out. The Tata Steel board reportedly could not make up its mind despite meeting twice.

More interestingly,JSW Ispat Ltd,in which Sajjan Jindals JSW Steel holds 49.31 per cent stake,has decided to separately bid for the said mines. This has forced the JSW Group to keep away from the consortiums bid proceedings since it is potentially a conflict of interest situation,putting JSW Steel in a position wherein it can share the bid price with its sister company JSW Ispat.

When contacted,a Mines Ministry official said the developments have put the other consortium members in a difficult spot.

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The government will have to take a call if it would still like to go ahead with such a consortium, said an official,who did not wish to be quoted.

In an August 17 letter to SAIL Chairman C S Verma,JSW Groups Joint Managing Director and Chief Financial Officer Seshagiri Rao MVS said,Keeping in view the principles of corporate governance,we propose that JSW Steel shall not participate in any consortium meetings and agrees to be bound by any decision taken by the other members of the consortium in such meetings.

He said that JSW Ispat did not have captive iron ore mines and has hence decided to bid in its individual capacity to secure raw material linkages for its steel plant.

Rao has marked a copy of his letter to the Steel Ministry as well.

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Sources also said that while SAIL is keen to set up a steel plant in Afghanistan,its PSU counterpart NMDC is concerned about the high economic costs. It has indicated an imminent pullout given the presence of several low-cost integrated steel producers in neighbouring countries such as Kazakhstan,Ukraine and Russia. Besides,it is also worried that a steel plant would block its capital.

The consortium was formed recently at the governments behest,led by maharatna SAIL with 18 per cent shareholding. While NMDC and RINL hold 17 per cent each,Tata Steel,JSW Steel and Navin Jindals JSPL picked up 16 per cent stake each in the joint venture.

This consortium was mandated to bid for the Hajigak mines located in Afghanistans mountainous Bamiyan province,130 km west of Kabul.

The mines are estimated to contain about 1.8 billion tonnes of high-grade ore.

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Government officials said the winning bidders would have to bear enormous costs. As per the bid conditions of the Hamid Karzai government,they must submit a refundable bid bond valued at $500,000 (Rs 2.5 crore each). All royalties,cess and duties will have to be paid by the bidders.

Considering that the annual investment needed would be to the tune of Rs 22.5 crore or more,the total estimated investment required would be nearly Rs 700 crore besides the huge spend on developing infrastructure.