Jindal Steel's ambitious but risky foray into iron ore mining in Bolivia faces an uncertain future after the Bolivian government reneged on its promise of natural gas, a crucial input into steel making.

"We have had discussions with senior ministers. And we are currently working out how the steel and pellet plant can be scaled down in the face of a shortfall of gas supply," said Vikrant Gujral, group vice chairman, said in an interview over the phone from Bolivia.

Jindal needs about 4.5 mcmd (million cubic metres of gas per day) of gas for its operations but was offered only 2.5 mcmd by the Bolivian state-run Yacimientos PetrolAferos Fiscales Bolivianos (YPFB). Jindal has said that the gas supplies are crucial to its operations and Bolivia, with 50mcmd output every day is South America's largest producer and a big exporter to Brazil and Argentina.

Jindal purchased the El Mutun iron ore mines in 2007 for about $2.1 billion but its attempts to develop the mine and build a steel complex have been hobbled by a series of disputes with the Evo Morales-led Bolivian government. Unhappy with the progress on the ground, the Bolivian government.

Unhappy with the progress on the ground, the Bolivian government had been threatening to take back the mining rights. In 2010, the dispute reached a flashpoint when the government revoked the $18-million bank guarantee prompting Jindal Steel Bolivia (JSB) to file a case in the International Court of Arbitration last year.

The dispute subsided but continued to simmer beneath the surface. Last November, JSB stopped shipments because of low water levels of the Tamango canal, and the Morales government retaliated by threatening to employ the land-locked country's navy. JSB has been eager to resolve the dispute quickly as it has mined a million tonnes of ironore, some of which it's already

It has also placed orders for the steel plant with Midrex, the pellet plant with Outotec, as well for other civic works. Gas
supplies falling short of requirement could now impact JSB's planned investments again.

According to local media reports, Bolivian ministers are now grumbling about the subsidised price of the gas agreed to in the concession six years ago. JSB could also lose another $18-million bond, if next month's critical audit fails to impress the Bolivian government.As per original terms JSB was to have invested $600 million in the last two years.

There are also fears that the new arrangement between the government and Swiss mining major Glencore could be imposed on other companies too, jeopardising Jindal's viability.The revised deal with Glencore offered the government a larger share of profits in its Bolivian zinc, lead and tin mines.

Agency reports said that the Bolivian state miner Comibol would market the mineral, take home 55% of profits with Glencore acting as a "service provider" and retaining 45%. The Glencore contract is being seen as a model for other companies,
something that could concern Jindal.

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