Indian state scraps $1bn JV project with Rio Tinto

24 February 2015 (Last Updated February 24th, 2015 18:30)

The Odisha State Government in India has decided to cancel its $1bn joint venture (JV) project with mining major Rio Tinto.

The Odisha State Government in India has decided to cancel its $1bn joint venture (JV) project with mining major Rio Tinto.

Rio Tinto established the JV with the state-owned Odisha Mining Corporation (OMC) and National Mineral Development Corporation (NMDC) in 1995, in order to develop the Gandhamardhan and Malangtoli iron ore deposits in Odisha.

The project had a mining capacity of 25 million tonnes (Mt) a year and included development of leases in the Keonjhar and Sundergarh districts.

Disputes between the companies arose as Rio Tinto planned to export 50% of the iron ore produced while OMC earmarked it for domestic use.

"Rio Tinto planned to export 50% of the iron ore produced while OMC earmarked it for domestic use."

The changed dynamics in the iron ore industry have prompted OMC to scrap the project with the mining company, reported the Business Standard.

OMC had been experiencing cash difficulties when it signed the JV agreement, but now a surplus of around Rs50bn.

It is believed that the project has made no progression since the deal was made and that, following disagreements, the partnership became strained and a legal battle ensued.

In 2003, OMC filed a case in the Odisha High Court to end the agreement, while Rio Tinto approached the Company Law Board of India.

Under the terms of the original agreement, Rio Tinto was to hold 51% equity in the JV.

NMDC was given a 5% share from OMC's 49%, creating a tripartite agreement between the three companies, signed in 2000.