Potential setback for Santa Cruz and Bolivia, will the Mutun remain unproductive?

Natali Vargas from Pagina Siete, highlights what may become a major disappointment for Santa Cruz and less revenue for all Bolivia, over the short run:

Jindal Steel and Power Limited (JSPL) is already not taking into account the draft steel of the Mutún in their estimates of investment and profits in the future, as it is considered that the implementation of this is uncertain, revealed in a study carried out by an international consultant commissioned by the Indian company.

The study of Citigroup Global Markets since JSPL information, was facilitated by Jindal Steel Bolivia (JSB) to Pagina Siete, it discusses investments and projects of the company in various countries.

With regard to the Mutún says that JSPL “Bolivia not incorporated into their estimates. No value to the project, due to greater uncertainty about the progress made. The state of the project is uncertain and the Administration is hoping to update it, i.e., determine if it is likely that the project continues forward or not”.

Uncertainty about the future of the steel undertaking arises since mid-2011, Jindal Steel Bolivia (JSB) – subsidiary of JSPL requested the Bolivian state-owned oil company (YPFB) to give since 2014, from 4.5 to six million cubic meters per day (Mmmcd) of natural gas to the thermoelectric. The number rises to 10 MMmcd by 2017.

However, YPFB agreed to negotiate that request just in April, then JSB presented its comprehensive plan, their investment report and cash flow, among other documents demanded by the State oil company.

Days earlier, on March 8th, the Indian capital firm had advised the company steel of the Mutún (ESM) that it determined to temporarily suspend the contract. According to its President, Vikrant Gujral, that interruption implies a halt in the investment, in view that the provision of gas is unsafe [unreliable].

Last week, the Ministry of mining and metallurgy reported that negotiations between JSB and YPFB entered a recess. The State oil company offers 2.5 MMmcd of gas by 2014.

On the position of the Government, the Manager of Legal Affairs of Jindal Steel Bolivia, Jorge Gallardo, preferred not delve into details “for the delicate situation of the negotiations”.

http://www.paginasiete.bo/2012-04-26/Economia/NoticiaPrincipal/08Eco01260412.aspx

The following article is from ERBOL, also published in Pagina Siete, April 26, 2012, the one above is from April 25, 2012. Current government is planning to ‘extend’ the date for Jindal’s guarantee ballot:

The Minister of mining and metallurgy, Mario Virreira, informed this Thursday to extend the term of expiration of the ballots of guarantee for 60 [additional] days, the ballots are for $18 million from the Jindal Steel Bolivia steel company, which is in charge of the exploitation of the deposit of the Mutún iron mine. Ballots were due by the end of this month.

“This ballot of guarantee must be renewed and we have also pointed out to Jindal Steel the criterion of the national Government, so this renewal shall extend to the minimum. So that the level of investment that Jindal Steel would have done to date will be reviewed, the extension of the ballot on the Government approach is not more than 60 days”, explained at press conference, as quoted by state-owned ABI news agency.

However, said that the “formal decision” on expansion of the ballots of guarantee periods will be taken by  the Mutún iron and steel company board, meeting to be held this afternoon [4/26] in Santa Cruz.

“In the course of today there is a meeting of the Board of the steel company of the Mutún which must take a decision with regard to the renewal of the ballot of warranty which expires at the end of this month,” he added.

He also said that the work of verification of these ballots of guarantee in relation to investments will be made by specialized consulting firms hired by the Mutún iron and steel company and the shared risk board.

http://www.paginasiete.bo/2012-04-26/Economia/Destacados/Gobierno-60-dias-plazo-Jindal.aspx

After reading both articles, it is worth remembering that El Mutun, a mine of iron ores and probably also gold among other minerals has been a regional concern for at least half a century. The way Jindal was brought here, the natural gas availability, the lack of railroad and other forms of transport to export and the industrialization of steel and other derivatives was nor clear nor proper work being done. These days, some municipal officials from Puerto Suarez and probable laid-off workers may exert blockades and strikes to keep Jindal in place, while across the border Brazil has a profitable and well run mining and steel metallurgy.

If Jindal wants 4.5 Mmmcd since 2014 to operate, and the government (YPFB) says they can only provide 2.5, we are simply showing inefficiency and misleading not only Santa Cruz but potential investors to Bolivia. In addition, thinking that Jindal will decide what to do, after requesting Citigroup’s work and then to relay and accept the ‘gracious’ Bolivian government’s concession of a 60 day ballot extension, will make them change their overall long-term plan, by the current Bolivian government is pure and simple naivety on the part of the latter.

I believe we should amend this mess: let go Jindal, bid and find a large company that could handle El Mutun, not to export ores but steel and other value-added products. In the meantime, build needed loops in the GTP pipeline to secure the required gas for these venture, while building railroads, harbors and making the Paraguay river serve its purpose.

The above will be achieved if current government follows procedures, gives assurance to foreign investors and El Mutun is not politicized. People from Puerto Suarez and others should remain calm and just monitor the implementation of all the infrastructure needed for a competitive exploitation of El Mutun’s wealth.

Published by Bolivian Thoughts

Senior managerial experience on sustainable development projects.

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