The Indian Steel Companies' Consortium Will Have to Finance The INR 40,000 Crore

Indian Express reported that the Indian steel companies' consortium that won the bid for the Hajigak iron ore mine in Afghanistan will have to finance the INR 40,000 crore to explore the mine and set up a steel plant from their own pocket as the finance ministry has shot down their demand to part finance the project.

This means the consortium will have to borrow abroad without a sovereign guarantee making the loans expensive.

The 7 member consortium of Indian companies is led by SAIL. It has won the rights to Hajigak mine in Afghanistan's Bamiyan province in November last year, which is said to contain the world's second largest reserves of 1.8 billion tonne of high grade iron ore. The consortium, Afghan Iron and Steel Company had subsequently appealed to the Prime Minister's Office for financial assistance in executing the project as the bill became steep.

But the finance ministry after a meeting with the steel ministry's top brass has told them that given the tight resource position of the government, it would not be possible to finance the exercise. Instead the syndicate members should explore pooling in their investible surpluses to execute the venture.

The consortium wanted an assistance of about INR 3,000 crore from the government either through a credit line or in the form of a soft loan. It had also sought a grants in aid of about INR 8,200 crore for building a 2x400 MW power plant and 200 kilometer road network. The syndicate also sought financial assistance of INR 16,000 crore for building a dedicated rail corridor between Bamiyan and the Iranian port city of Chahbahar.

In Afisco, SAIL has 18% shareholding while its fellow PSUs NMDC and RINL hold 17% each. Among private players JSW and JSPL hold 16% each, while JSW Ispat and Monnet Ispat & Energy hold 8% and 4% stake respectively. The syndicate has a problem as multilateral funding agencies are not keen to finance the project which means the cost of borrowing from the international markets is going to be high. A government credit line could have lowered the interest rates on the loan for them.

The balance sheets of the Afisco members will now have to stand surety for the loans but those aren't encouraging either. While SAIL has a cash reserve of nearly INR 7,000 crore, RINL has a little over INR 5500 crore, while JSW Steel has cash reserve of over INR 2,200 crore.

A senior official of one of the Afisco syndicate said that "We would need support to execute a project of this magnitude. Where is the question of investible surpluses as the general outlook of the steel industry the world over is down. We should be extended a credit line or a similar help."