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Jindal Steel wins $22.5 million arbitration award on Bolivia project

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23 August 2014

Indian steelmaker Jindal Steel & Power Ltd's Bolivian subsidiary has won a $22.5 million arbitration judgment against state-owned mining company Empresa Siderurgica del Mutun (ESM), the company said in a release today.

Jindal Steel wins $22.5 million arbitration award on Bolivia projectThe International Chamber of Commerce in Paris ruled on 6 August that ESM unlawfully took the money that Jindal Steel Bolivia had placed as guarantees for the El Mutun iron-ore mining project, according to a Jindal statement.

Jindal, which signed a contract in 2007 to develop 20 billion tonnes of iron-ore reserves at El Mutun, had planned to build a 1.7 million tonnes per year steel plant in addition to a sponge-iron factory, a pellet unit and a power project, the company said in 2012.

''Jindal has been one of the foreign investors impacted by anti-investor policies and conduct by Bolivia in recent years. Jindal's investment in Bolivia related to El Mutún, a deposit of
approximately 40 billion tonnes of iron ore in eastern Bolivia near Brazil and Paraguay. Jindal entered into a 2007 joint venture contract with the Bolivian State, ESM, and another state entity, COMIBOL, to develop and exploit El Mutún. Jindal invested millions of dollars in the project, including providing $18 million in project guarantees.

''The El Mutún project was impeded because, among other things, the company never received access to lands where the project was to be developed, contrary to the contract, and Jindal bank guarantees amounting to $18 million were wrongly encashed. In the aftermath of the encashment, President Evo Morales and a government minister agreed to isolate the issue of the encashment, as Jindal continued its efforts to advance the project, Jindal stated in a release.

Bolivia's mining minister Mario Virreira has been holding that Jindal withdrew from the project because of lack of funds and not because of government pressure. The government seized the company's guarantee for failing to meet its contract.

Jindal commenced arbitration before the International Chamber of Commerce (ICC) in Paris and sought recovery of $18 million principal, plus interest, related to the illegal encashment of the bank guarantees. In an award dated 6 August 2014, the ICC Tribunal agreed, granting principal plus interest for a total in excess of $22.5 million.

The tribunal reconfirmed that the case focused on the encashment of the two guarantees, and ruled as follows:

  • There was no entitlement ''to encash the guarantees'' and ''ESM breached, with its encashment, the contract obligations in respect of Jindal;''
  • There was ''more than sufficient evidence … to establish that ESM did not comply with the obligation to deliver the lands'' and this suspended Jindal's obligations under the contract;
  • The purported excuse for encashment, related to a supposedly untimely renewal of the guarantees, ''constituted an abuse of right'' because the guarantees were fully renewed. The tribunal cited an ''excess of formal rigour'' and ''prohibited conduct'' under Bolivian law, which was ''inexorably illegitimate,'' and ''lacking legitimate cause or fair motive, characteristic of abuse of right under Bolivian law;'' and
  • The ICC rules governed the arbitration per a clause in the underlying contract, despite a jurisdictional objection to the contrary.

The merits stage of the arbitration was completed in approximately half a year, and the award was issued after the final hearing in Miami in July 2014.

In addition to the unlawful encashment in 2010, additional actions by Bolivia and its entities
undermined the El Mutún project and forced the termination of the project contract. Jindal has commenced a second ICC arbitration related to the project, focused among other things on damages arising out of the termination of the Mutún contract. Jindal is seeking damages approaching approximately $100 million.

The case is pending. Jindal instructed the international lawyers of White & Case for both arbitrations.

Jindal observed that Bolivia and its entities broke Jindal's trust, broke Jindal's investment, and acted in violation of the contract and law. The case result vindicates Jindal's efforts to develop the El Mutún project despite the circumstances in Bolivia.

Bolivia's treatment of Jindal and its representatives has reflected a pattern of maltreatment of foreign investors and their representatives in Bolivia in recent years, it said.

A Jindal witness who is living abroad filed a human rights complaint against the Bolivian state in connection with the undue persecution. Bolivia's criminal allegations centered on a supposed breach of contract by Jindal - an issue which the international tribunal found was non-existent.





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