KOLKATA (miningweekly.com) - India’s Coal Ministry will not be pushing to develop coal resources in Afghanistan as per a memorandum of understanding (MoU) signed between the two governments in November 2012.

Officials in the Coal Ministry said that a strategic review of the investment environment since the signing of the MoU had suggested a more cautious approach in getting Indian government-owned mining companies involved in Afghanistan.

Unofficially, it was conceded that the Indian government would prefer to adopt a wait-and-watch policy on the security environment in that country post the 2014 drawdown of US forces from Afghanistan. But considering India’s friendly bilateral relationship with the Afghan government and India’s strategic interests, diplomacy necessitated that reluctance to enter the coal sector should be kept low key, the official said.

However, the primary reason for the Coal Ministry’s cold feet in pushing mining companies under its control into the Afghan coal sector was the local companies’ failure to conclude favorable agreements in the steel and iron-ore sectors, the official added.

An Indian inter-Ministerial group last month instructed Afghan Iron and Steel Company (Afisco), a consortium of mining and steel companies, not to conclude formal contractual agreements until fresh due diligence was conducted into investment proposals in the Afghan iron and steel sectors.

The Coal Ministry reckons that with the Finance Ministry turning down any kind of sovereign funding facility or guarantee of debt fund raising for Afisco, exploration activities by government-owned coal miners would not be feasible.

Last year, following a visit of an Indian delegation to Kabul, India proposed a consortium similar to Afisco, which could include miners like Coal India Limited (CIL), Singareni Collieries Company Limited and Hindustan Copper Limited, to explore investment possibilities in developing coal, copper and gold resources in Afghanistan.

However, CIL has been reluctant to get involved in Afghanistan ever since the proposal was mooted and the Coal Ministry has fallen in line with its latest stance.

“The Afghanistan industrial and economic environments are very difficult. We do not have the necessary experience in working in such environments. Besides, there are country risks to investments which cannot be hedged without sovereign guarantees,” a senior CIL official said.

The Afisco proposal, now falling apart, entailed $11-billion in investments in iron-ore and steelmaking facilities, along with supporting infrastructure.

Afisco comprised Indian government-owned companies such as the Steel Authority of India Limited, 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.