NEW DELHI: A consortium of Indian miners and steel companies that calls itself Afghan Iron & Steel Company, or AFISCO, has just completed its fifth and possibly final negotiations on Tuesday.
A final contract prepared by lawyers from both sides will be passed by Afghan cabinet, as soon as their new mineral policy is drafted and approved, according to a senior Afghan official.
In November, AFISCO was chosen as the preferred bidder for three of the four concessions at Hajigak, that lies 130 west of Kabul in the Bamian district.
The Indian consortium will now have rights for 30 years to develop the mine and put up a steel and power plant that it has promised to the war torn country.
Sources involved in the negotiations say Afghanistan has given the consortium three years of exploration and another couple of years to put up a steel plant while promising energy and water resources for its running.
An export cap of 6 mtpa is to kick-in if there is any delay in setting up a steel and power plant. Officials from the country point out that AFISCO's bid was considered for the promised downstream infrastructure - a steel plant, a power plant, a 200-km railway line linking them to the mine that Indian consortium estimated could cost about $11 billion.
Afghanistan has also proposed a sliding royalty of 3-12% charged on international benchmark prices for a more equitable share in the ups and downs of iron ore prices.
"Certainly expecting value addition is not uncommon for a country (like Afghanistan) in need of investment and rebuilding. Having said that one must ask whether the ecosystem for an integrated steel plant — energy, water, logistics, and eventually a market for its (steel) use - can be created.
Any demand for steel can only come from infrastructure, or housing that again will depend on global aid," said Kameswara Rao, Executive Director -Energy, Utilities, and Mining, PwC. It is however somewhat new and unusual in such international concession for long contracts to be linked to benchmark prices, an expert said.
International concessions have mostly been signed on a fixed royalty linked to an advalorem price. "Afghanistan seems to have learnt from other countries who have had difficulty coming to terms with the wild fluctuations of iron ore prices,
feeling particularly deprived of the boom that miners encased in the last couple of years," said a senior official of a consortium member.
AFISCO consists of government promoted Steel Authority of India, NMDC, RINL and private players that include Jindal Steel & Power, JSW Steel, JSW Ispat and MONNET Steel and Power.
A joint venture company respecting each firm respective share will be registered soon. A similar public-private consortium is now pursuing its chances with copper deposits on the block in Afghanistan, and will be making a commercial bid for a copper block by August 6.
Hajigak is Afghanistan's second serious international investment in the mineral sector. In 2010, the US Department of Defense revealed that Afghan mineral riches could total $1 trillion. Afghanistan believes it's closer to $3 trillion.
The recent investment summit on Afghanistan hosted by New Delhi is to be seen as an example of India's serious efforts in this regard. Counting on this, consortium members are hoping to get financial assistance from the central government.
India isn't the only country risking the volatility of the war torn Afghanistan for its rich mineral deposits. With an investment commitment of nearly $4 billion, China is developing the Aynak copper mines in the Logar district that it won rights to in 2007. (Agencies)