Naveen Jindal's Bolivia Exit - Another Lesson Learnt

When Naveen Jindal outbid mightier rivals like Lakshmi Mittal in 2007 to win rights to develop the El Mutun iron ore mines in Bolivia, people of the South American country came out on the streets to celebrate.  State radio had made a special announcement after Jindal’s JSPL inked the agreement with the officials from the Evo Morales' government. Jindal had promised to invest $2.1 billion- making it the largest ever foreign investment into the tiny country. With reserves of over 20 billion tons, the EL Mutun mines are among the few iron ore mines that remain untapped. Morales had hoped that more international companies would want to invest in Bolivia’s natural resources after the Jindal deal.

Five years on, Jindal has made an equally unceremonious exit from Bolivia. Not surprisingly, both sides are blaming each other.  JSPL alleges that Morales did not fulfill “contract conditions,’ which included 10 million cubic meter per day of natural gas“ for the steel plant. “The Govt. of Bolivia was willing to commit only 2.5 MCD of gas,” the company has said in a statement.

The South American government, on the other hand, blamed Jindal for not putting in money as promised. “Jindal was simply trying to make investments on the basis of our potential. They did not have their own capital, they were just speculating with stock markets and trying to invest on the back of that,” Reuters quoted mining minister Mario Virreira saying at a news conference. “Now we want to find a company that shows us they’ve really got the capital to invest in Bolivia,” he added.

It is hard to say where the blame lies. Jindal's is not the first company to have an unhappy exit from the country as the left-leaning Morales increases state-control over resources. At the same time, it is clear that the Indian company was stretched as it tried to salvage the high profile project. The venture also exposed Jindal's vulnerability as a relative rookie in the international marketplace- more suave global investors like Mittal were a little less aggressive about getting the mines.

Jindal's exit from Bolivia underlines the challenges Indian companies are facing in their quest for raw material security. And the challenges come in various forms – competition, unknown territory or uncertain polity. Jindal’s elder brother Sajjan Jindal faced setback in Mozambique two years ago when it found that the ash content in the coal mines there was twice in India. The mines were simple unviable. Last year, Tata Steel had to sell its 26 per cent stake in Australia’s Riversdale, to global miner Rio Tinto, after the latter took majority control in the company. Though Tata Steel got a 100 per cent return on its investment, analysts saw the stake sale as a setback to the company’s drive to secure raw material resources, especially for its European units that don’t own any mines.

Interestingly, the last word is yet to be said in Bolivia. Jindal says he intends to pursue international arbitration relating to the contract.”  While this may just be just a face-saving exercise for the entrepreneur- the Bolivian experience has certainly been an expensive exercise.

The thoughts and opinions shared here are of the author.