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India to seal deal on maiden Afghan steel project today

NEW DELHI: The Indian government will hold talks with a SAIL-led consortium of steel and mining companies to ease their entry into Afghanistan for the first-ever deal to develop four iron ore blocks and build a steel plant in Hajigak, west of Kabul in Bamiyan province. Sources said while 90% of the final agreement was done, the Afghan Iron and Steel Consortium (AIFSCO) want some kind of soft financing from the Indian government. 

"The first phase, which will involve prospecting and exploration, is likely to take about 18 months and will involve an investment of around $75-$80 million," said officials involved in the negotiations. Hajigak is believed to hold 1.8 billion tonnes of high-grade iron ore. In the second phase, the consortium will build Afghanistan's first steel plant. The project has a gestation period of about a decade. 

A meeting of all the stakeholders is expected to be held on Friday to iron out the glitches. 

The consortium remains unsure about how the steel would be evacuated and how security could be arranged. They want the Indian government to ensure transportation, while the Afghan government is being asked to arrange supplies for coal, limestone and dolomite needed for the steel plant. "These clarifications are necessary," officials said. In order to feel their way in the project, the consortium may even lower their output in the initial years to lower the risks. The initial plan was an investment of $10.8 billion to set up a 6.1 mtpa steel plant and an 800 mw plant. 

While the steel companies say they are conscious of the strategic nature of the investment, they are acutely aware of the risks involved. For their part, the government is a little exasperated about the hand-holding that large companies apparently need. 

But the consortium wants to tie down both Indian and Afghan governments on the commitments for transportation links and security. The risks, they feel, might be exacerbated with the military transition in 2014. 

The Afghan government, too, is excited about the project. Recently, mines minister in Karzai government, Wahidullah Shahrani was quoted as saying, "It will be the largest ever economic project in the history of the country, which will involve the construction of the first ever steel plant in the country, and a railroad from the iron ore mine to the steel plant." Afghanistan has just issued a revised mining policy that is expected to help Indian investments in a big way. 

Afghanistan is believed to be sitting on $1 trillion of mineral resources. India is trying to secure an early mover advantage there, which could make Afghanistan New Delhi's best investment ever. China has already invested $3billion in copper mines at Aynak near Kabul. But this project has been stuck after an archaeological discovery in the adjoining areas. China's first investments to take off have been oil concessions in the Amu Darya region.