Bolivia Says Will Mine Iron Project If Jindal Doesn’t Fulfill Contract -Report

Bolivian President Evo Morales vented against delays at India’s Jindal Steel & Power Ltd. (532286.BY) iron mine project over the weekend, saying that his government would go ahead and start mining the deposit in the southeastern region of the Andean country if the company doesn’t stick to the development timeline agreed with the government.

“We expect the contract to accelerate and, if not, the State will start developing and exporting the iron in Puerto Suarez”, Morales was quoted as saying by local newspaper La Razon on Monday. Puerto Suarez is the nearest town from the mine site dubbed El Mutun.

A 40-year contract signed between Jindal and the Bolivian government in 2007 gave the Indian company the right to mine El Mutun iron deposit near the border with Brazil. In exchange, Jindal pledged to invest a total of $ 2.1 billion over eight years to mine and smelt half of the deposit’s estimated 40 billion tons of iron.

Morales’s comments came as some local residents are planning to protest Jindal’s decision to stop shipping iron ore and the company’s delays in the iron and steel project. According to the newspaper, Jindal has suspended its iron exports until 2012 due to the low water levels of the river routes.

During a ceremony to commemorate the 185th anniversary of the country’s navy on Sunday, Morales said the government will transfer two tug boats and 16 barges with a load capacity of 2,500 tons each to the navy, so that it can export the natural resource from Puerto Busch via the Parana-Paraguay waterway to the Atlantic ocean, according to the paper.

Representatives from both Jindal Steel Bolivia SA, the local unit of the Indian company, and the state-run concern Empresa Siderurgica del Mutun, in charge of supervising the project, declined to comment when contacted by phone.

The El Mutun deal is the largest outlay by an Indian company in South America and also the largest investment by a foreign company in a single project in Bolivia, according to Jindal’s web site.

The project, however, has been rife with delays and disputes between the company and the government over the transfer of land, the schedule to start work and the timing of planned investments.

In early October, Bolivia’s Energy Minister Jose Luis Gutierrez speaking before a Congressional panel even went as far to say that “we should take Jindal out (of the project) because it’s deceiving us,” after accusing the company of failing to meet its investment commitments, according to the local press.

Aside from mining El Mutun site, Jindal is expected to invest in setting up steel, sponge iron and steel pellet plants, along with a 450 megawatt power plant. The company will be exporting iron ore, mainly to China, Middle East and South America countries.

The lack of progress, or failure, of the project might dent the country’s outlook. Not only is the deal the biggest investment commitment in Bolivian history, but it also was seen as a potential political boost for leftist President Evo Morales –who nationalized Bolivia’s energy industry in 2006– and a potential driver of the country’s growth prospects, according to news reports.

In late August, Standard & Poor’s Services raised its outlook on Bolivia’s ratings thanks to the country’s new investments in the mining and gas sectors. After saying that a number of projects could raise Bolivia’s growth prospects and exports over the next years, the agency highlighted the El Mutun mines and the $ 2.1 billion investment by Jindal, among others projects. It warned, though, that “if political tensions reemerge and cause economic uncertainties, or if the planned investment fails to materialize, the ratings could come under pressure.”

The landlocked South American country, with an annual gross domestic product of around $ 17 billion, received $ 651 million in foreign direct investments in 2010, 53% more than in 2009, according to the Economic Commission for Latin America, or ECLA, with the majority of the FDI going to mining and quarrying activities in the past years.

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