Rio Tinto, Orissa to end JV dispute

May 28, 2008

May 28 (Business Standard) – Global resource major Rio Tinto and the Orissa government are close to resolving their long-standing dispute over forming a billion dollar joint venture to mine iron ore in the state.

“Discussions are in progress to resolve the dispute and we are close to coming to an agreement”, said Nik Senapati, managing director, Rio Tinto India.

The Orissa project, which figures at the top of Rio Tinto’s India business plan, has been jinxed for over a decade now.

Rio-Tinto Mineral Development (RTMD) had entered into a pact with state-owned Orissa Mining Corporation (OMC) in 1995 for the development of Gandhamardan and Malangtoli iron ore deposits in Keonjhar and Sundergarh districts in Orissa. Accordingly, a joint venture was launched under the banner of Rio Tinto Orissa Mining Private Limited (RTOM).

However, the project couldn’t take off. The parties failed to sign the Project Development Agreement in time following the non-finalisation of key issues such as direct export of iron ore. Subsequently, OMC proceeded to wind up the joint venture company as per the advice of the Solicitor General of India.

OMC suggested that a fresh agreement should be negotiated while winding up the joint venture company. RTMD, however, didn’t agree and recommended a fresh agreement without winding up the joint venture company.

OMC, meanwhile, moved the Orissa High Court seeking winding up of the JV. The RTMD moved the company law board (CLB) against the OMC’s decision.

The CLB passed an interim order restraining OMC and the state government from transferring and providing Gandhamardan, Malangtoli, Sakradihi and Dubna leases for survey or exploration purposes to any party other than the joint venture company.

Though the petitions filed by OMC and RTMD are still pending for final disposal, both the parties are eager to settle the issue out of court. They have softened their stand and have had several rounds of discussions aimed at an amicable solution.

The Orissa government, on its part, formed a task force in August 2007 to resolve the issues. The task force is headed by the Orissa chief secretary, Ajit Kumar Tripathy and has the finance secretary, steel and mines secretary and the managing director of OMC as its members.

According to sources, the committee has started fresh negotiations without reference to the old agreement. The task force will give its advice to the internal committee formed by the OMC for this purpose.

“The government wants OMC to get maximum benefit out of any possible agreement with Rio-Tinto”, said a senior official of the state steel and mines department. (The reporter’s trip has been sponsored by the Australian government)

The Rio Tinto’s Orissa project envisaged 25 million tonnes of iron ore per annum.

The scope of the initial proposal, conceived in mid 90s, included the construction of a railway line linking the mines to Paradip port and iron ore berths at the port. However, the proposed revised format may only confine the project to iron ore mining and exclude infrastructure development work.

Similarly, sources said, the new terms of reference of the joint venture with OMC will focus on mining of ore for domestic consumption rather than exports.

This will help the state government to justify the JV arrangement with Rio in the face of opposition from political parties. The state needs huge amount of iron ore to meet the raw material needs of a large number of steel plants coming up in the state.

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