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| OMC-Rio Tinto JV revival hits state finance department's hurdle |
| BS Reporter / Kolkata/ Bhubaneswar Sep 10, 2010, 00:04 IST |
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The road to revival of the joint venture (JV) between the Orissa Mining Corporation (OMC) and the Anglo Australian mining major Rio Tinto appears bumpy with the state finance department expressing its reservations over the issues of tax income to the state exchequer and the necessary approval of the Foreign Investment Promotion Board (FIPB).
"The revival plan of the OMC-Rio Tinto JV has been vetted by the finance department. We have stated that the FIPB clearance has to be in place for the revival plan. Moreover, there are issues of tax revenue from the project and we have sought a detailed assessment of the projected revenue to be paid by the JV company”, a top official of the state finance department told Business Standard.
This is likely to cause further delay in the $1 billion jinxed iron ore mining project which the mining behemoth Rio Tinto intended to take up through a JV with OMC.
"The state government's priority is to fulfill the domestic demand of iron ore in the state through the project. But Rio Tinto is insisting on according priority to iron ore exports as the ore sold to the local end users does not make a profitable proposition for the mining major and this has put the brakes on the revival plan. A final decision in this regard will be taken by the state government”, an official source said.
It may be noted that the Orissa government had constituted a task force in 2007 under the chairmanship of the Chief Secretary to look into the renewal of JV agreement between OMC and Rio Tinto.
“OMC and Rio Tinto had several rounds of negotiations on preparing a new draft agreement. The new draft, which has incorporated a few changes, was sent 2-3 months back to the state government. Now, the state government has to decide on whether it is still keen on reviving the iron ore project as Rio Tinto did not show adequate initiative to develop the project from 1995 till 2002-03”, a top OMC official had earlier told Business Standard.
Rio Tinto had entered into a JV with OMC on February 24, 1995 to develop Gandhamardan and Malangtoli iron ore deposits in Keonjhar and Sundergarh districts in Orissa with a mining capacity of 25 million tonnes per annum.
However, the project could not take off due to different reasons including slump in the iron ore market and proposal for direct export of iron ore, prompting the OMC later to seek winding up of the JV as per advice of the Solicitor General of India.
This sparked off a legal battle between the two parties. While OMC had filed a case in the Orissa High Court to wind up the JV agreement, Rio Tinto had approached the Company Law Board of India to contest OMC's claim.
Even as the petitions filed by OMC and Rio Tinto were still pending for disposal, both the parties seemed eager to settle the matter out of court, sources said.
As per the original pact, Rio Tinto was to hold 51 per cent equity in the JV while OMC would own the balance 49 per cent.
However, the state owned NMDC which originally got lease over Malangtoli mines Keonjhar-Sundargarh belt in 1977, raised objection seeking its share in the JV.The Centre allocated Malangtoli mines in favour of OMC in 1992 after NMDC failed to explore the iron ore from the reserve.
Considering NMDC's claim that it had undertaken drilling and other activities at Malangtoli mines, it was given 5 per cent share from the OMC's 49 per cent following which a tripartite agreement was signed between the OMC, NMDC and Rio Tinto in 2000.
The two JV partners had agreed to export 50 per cent of the mined iron ore while the remaining 50 per cent was to be set aside for domestic consumption.
The project was billed as Rio Tinto's first major foray into India's mining sector. Rio Tinto was to bring its state-of-the-art technology for the mining project.
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