KOLKATA (miningweekly.com) – India’s venture into iron-ore resources in Afghanistan has hit a roadblock with the Indian government seeking fresh due diligence and scrutiny of agreements signed by government-owned companies for planned investments in that country.

An inter-Ministerial group reviewing Indian projects in Afghanistan has instructed that all contractual agreements signed be reviewed and that projects be put on hold until the review has been completed.

The decision follows the Finance Ministry’s opposition to any type of government funding for iron-ore mining and steelmaking projects in Afghanistan.

According to the Finance Ministry, the iron-ore mining and steelmaking projects proposed by a consortium of Indian State-owned and private companies were purely commercial in nature and could not be considered to be of any national strategic importance and, therefore, sovereign funding for these projects could not be justified.

Ordering a review of various contracts signed between the Indian consortium and the Afghan government, the inter-Ministerial group observed that several clauses in the contracts were not aligned to the risk-benefit parameters of the project and that the consortium might have to renegotiate existing contracts.

Afghan Iron and Steel Company (Afisco) had bagged the rights to develop three iron-ore blocks in Hajigak province, in Afghanistan, in 2011, and a memorandum of understanding was signed with the Afghan government last year. Afisco proposed investments of $11-billion for development of the reserves, including a steelmaking facility and infrastructure and rail links to the project sites.

Afisco comprised Indian government-owned companies such as the Steel Authority of India Limited (SAIL), Rashtriya Ispat Nigam Limited and iron-ore miner NMDC Limited, which together held 56% of the equity of the company, while private producers, such as JSW Steel, JSPL Limited and Monnet Ispat, held the balance.

Afisco had sought a government grant of $600-million, apart from the $11-billion project cost, to build infrastructure for evacuation of iron-ore from the pitheads and to meet the country-specific risks of the host country. This was, however, turned down by the Indian government.

According to an official statement of SAIL, Afisco would not be able to commit its planned investments without Indian government funding.

Besides holding that the project was not of "strategic national interest", the Finance Ministry also stated that the government’s current fiscal position would not permit it to invest in projects in which the commercial benefits would only accrue to members of the consortium investing in Afghanistan.