SANTA CRUZ, Bolivia--India's Jindal Steel & Power Ltd. (532286.BY) has taken the first steps toward shutting down its iron-ore mine in Bolivia even as it holds 11th-hour talks with the Bolivian government to rescue a joint venture aimed at developing a local steel industry.
"We have sent out letters to employees and suppliers notifying them of the termination of their contracts," said a senior Jindal executive at the mine who asked not to be named. "The decision has been taken because the government has not given the necessary assurances to make us decide to stay."
A copy of Jindal's letter shown on news channel Gigavision earlier this week said workers would be laid off Sept. 9.
In 2006, Jindal and the administration of President Evo Morales signed a $2.1 billion contract to develop the El Mutun mine and build a steel mill near the river port of Puerto Suarez to export finished steel.
Located in a remote area of southeastern Bolivia near the border with Brazil, El Mutun is considered to hold one of the world's largest iron ore deposits with an estimated 40 billion tons.
Today, the mine is little more than a quarry nestled in a jungle-covered mountain. Mutun Steel Corporation, or ESM, the state company that holds a 50% stake in the joint venture, is now on its fourth president since it was founded in 2007.
The ambitious project that Mr. Morales frequently showcased as an example of how his left-wing government could attract foreign investment has become mired in bickering and mutual recriminations.
Bolivia accuses Jindal of not investing enough, while the Indian company says the government has failed to provide the energy and infrastructure needed to move the project ahead.
The government has seized $36 million in cash guarantees that Jindal had deposited at a local bank and demanded that Jindal post a bond of at least $27 million to show its commitment to the project.
Jindal has been trying to convince Bolivia to scale back El Mutun because state-run energy company YPFB can't provide the 10 million cubic meters of gas per day the Indian company says it needs for the steel mill.
The government can provide only 2.5 million cubic meters of gas per day, according to Bolivian officials and Jindal executives.
In what might have been his first public criticism of Jindal, Mr. Morales said Wednesday the company had violated its contractual obligations with Bolivia and was lying about not getting gas.
"It's totally false when Jindal says that we can't guarantee gas," he said in a televised press conference. "It is subject to the contract which also holds Jindal responsible for its commitment to invest. We will supply 2-3 million cubic meters of gas per day and increase the supply in relation to how much Jindal increases its investment."
Mr. Morales said the government was right to seize Jindal's cash guarantee because the company had fallen short of its investment targets.
Earlier this week, Bolivia's Vice President, Alvaro Garcia, said in televised comments that the Morales administration was prepared to consider "modifications" to the joint-venture agreement.
The latest clash between the El Mutun partners came after the government asked to audit the books of Jindal's local subsidiary.
A former ESM executive told The Wall Street Journal Jindal's move to fire staff and contractors is probably a negotiating strategy. Carlos Gallardo, Jindal's chief negotiator and legal counsel in Bolivia, said he expects talks to continue for another 30 days.
Jindal executives have said leaving Bolivia wouldn't represent a major loss to the company, though it would affect its plans to establish a strategic presence in South America.