India’s mining foray in Afghanistan on hold

AFISCO risks losing mining lease if it fails to commence mining within six months of the licence being granted.

Written by Amitav Ranjan | New Delhi | Published: October 29, 2013 3:00 am

India’s iron-ore mining foray in Afghanistan has been put on hold due to a finance crunch and an inter-ministerial committee formed to re-examine the contractual terms and funding of the project before it could be considered further.

A Committee of Secretaries decided on October 11 that SAIL-led consortium’s plan to mine iron ore in Afghanistan’s Hajigak required “due diligence and a relook at the various terms and clauses of the contract” after the finance ministry opposed state funding to the project.

SAIL had demanded $1,319 million as interest free long term loan for the debt portion of mines and steel plant and a $490 million grant-in-aid for developing project infrastructure. In addition,$15 billion was required to build a 2,482-km rail line from Hajigak to Iran’s Chabahar port to evacuate iron ore for exports.

While seeking concessional finance from the government,SAIL chairman CS Verma told the CoS that private companies,who held 44 percent stake in the Afghan Iron and Steel Consortium,(AFISCO) were “unwilling to commit without assurance of government support and funding”.

But finance ministry opposed state funding saying that since the project was bid on commercial basis,there was “no clause which assured any special benefit for the country” as all paybacks from the project would go the consortium.

“The proposal should continue to be viewed as a commercial project only,in which case,government funding did not seem possible. If the project is considered to be of strategic importance,financial support could be extended,but the overall fiscal situation was not encouraging,” said the Department of Expenditure.

Faced with the impasse,the CoS recommended a comprehensive review with “the need to remain engaged in the project and to also have a clear delineation of risks and benefits before the proposal could be considered further”. It also suggested that the consortium could renegotiate the contract to ensure “favourable terms”. The $3 billion contract gives MCC a 30-year lease to mine copper. The CoS directed the consortium to work with the Afghan government in the construction of the railway line so that project progress is phased with infrastructure progress.

AFISCO risks losing mining lease if it fails to commence mining within six months of the licence being granted.

State-owned SAIL,RINL and NMDC hold a combined 56 per cent in AFISCO while the balance is held by private players such as JSW,JSPL and Monnet Ispat & Energy.

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