KOLKATA (miningweekly.com) – In a partial about-turn, the Indian government is considering extending modest funding to a Steel Authority of India Limited- (SAIL-) led consortium for a mining and steelmaking project in Afghanistan.

Although the Indian government had turned down a request for viability-gap funding, a high-level government committee would consider extending around $75-million to $80-million on concessional terms to enable the consortium to start exploratory work on the Afghan project, a senior federal government official has said.

A decision on the amount and soft repayment terms would be finalised within the next week, the official added.

Afghan Iron and Steel Company Limited (Afisco), a consortium of seven Indian mineral and mining companies led by SAIL, won the rights to develop the Hajigak iron-ore reserves in 2011, committing investments of $11-billion, including a three-million-ton-a-year steel plant and allied infrastructure projects.

However, the consortium recently pruned its investment plans, announcing that it would start with a smaller steelmaking facility of one-million to two-million tons a year, as current infrastructure and the logistical environment at the location made the entire project vulnerable.

Afisco stated in a communication to the Steel Ministry that viability-gap funding was a necessity in raising long-term debt financing required for construction of infrastructure to evacuate raw materials like iron-ore and finished steel from the Hajigak region and that viability of the investments was critically dependent on availability of such logistic and infrastructure facilities.

According to the consortium’s presentations for viability-gap funding, it was pointed out that banks and financial institutions were cagey in extending long-term debt financing for allied infrastructure construction in war-ravaged Afghanistan.

Afisco officials conceded off-the-record that opportunities for bank funding were also bleak against the backdrop of US troop withdrawals that would be completed by the end of 2014.

Though it was not officially disclosed, the consortium was believed to have asked for $600-million from the government as viability-gap funding.

An consortium official said that the concessional loan from the Indian government would be required to immediately start geological surveying and exploratory work of the two-billion-ton Hajigak iron-ore reserves.