Bhubaneswar | Feb 24, 2015: Anglo Australian mining major Rio Tinto’s ambitious bid to mine iron ore in Odisha has come a cropper with the state government deciding to scrap the joint venture (JV) project that the mining giant had proposed with state-run Odisha Mining Corporation (OMC).
OMC had announced its intent not to pursue the JV project in September 2012. Now, the state government has allowed OMC to annul the deal with Rio Tinto for the $1 billion project, billed as one of the biggest FDIs in mining sector.
“The government has decided to scrap the JV project with Rio Tinto and allowed OMC to take necessary steps in this regard. We have sent written communication to Rio Tinto as well as OMC in this regard. The state government's counsel has communicated the decision to the Company Law Board. Since OMC said it was no longer keen to push ahead the project, the government decided that there was no merit in allowing it. We don’t see any legal hurdle arising out of our decision,” said a senior official at the steel & mines department.
The government has also decided not to alienate any mine in favour of the JV. Odisha had earlier identified Gandhamardhan and Malangtoli iron ore deposits in Keonjhar and Sundergarh districts for mining and shipping of iron ore by the joint venture company. OMC’s managing director S N Girish did not respond to phone calls.
OMC's reluctance to revive the JV project stemmed from the changed dynamics in iron ore mining. When the JV was signed in 1995, the demand for iron ore in the domestic market was tepid and OMC was a cash strapped PSU. But the scenario has drastically changed now with OMC in possession of a cash surplus of around Rs 5,000 crore. Also, with growing demand for iron ore within the country and local end use industries in the state, OMC is being envisioned as a long-term ore supplier.
Rio Tinto had entered into a JV with OMC on February 24, 1995 to develop Gandhamardhan and Malangtoli iron ore deposits with a mining capacity of 25 million tonne per annum. Ever since the signing of the JV pact, the project hardly showed any sign of taking off the ground.
The ambitious venture had run into rough weather due to intractable differences between the partners. While Rio Tinto was keen to export half of the iron ore mined, OMC emphasised on meeting raw material needs of local industries, prompting 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 Odisha High Court in 2003 to wind up the JV agreement, Rio Tinto had approached the Company Law Board of India to contest OMC’s claim.
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 National Mineral Development Corporation (NMDC) which originally got lease over Malangtoli mines Keonjhar-Sundargarh belt in 1977, raised objection seeking its share in the JV.
The Centre had 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 five 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.
(Source: http://www.business-standard.com/)