NEW DELHI/KABUL, Dec 31 (Reuters) - An Indian consortium has scaled down its plans for a $10.8 billion steel and iron ore project in Afghanistan because of a lack of funds, slashing proposed steel capacity and investment by 80 percent.
The consortium had to renegotiate the terms of the deal with Afghanistan after India's finance ministry refused to bank-roll the project without a detailed study about its commercial viability.
Led by state-owned Steel Authority of India Ltd, the group was to set up a 6 million-tonne-per-year (MTPA) plant tied to three iron ore mining blocks in Afghanistan.
Now the proposal is to build an 1.2 MTPA steel plant and develop the blocks at a cost of 130.57 billion rupees ($2 billion), India's steel ministry said in its year-end report released on Tuesday.
"The consortium is in the process of negotiating with the Afghan Ministry of Mines and Petroleum for signing the revised mining contract accordingly," the steel ministry said.
An Afghan Ministry of Mines and Petroleum spokesman did not immediately comment.
SAIL, along with partners NMDC Ltd, Rashtriya Ispat Nigam Ltd, JSW Steel Ltd, Jindal Steel & Power Ltd and Monnet Ispat & Energy Ltd, won a bid in late 2011 to explore the three iron ore blocks with reserves of 1.28 billion tonnes of ore.
If a final deal is sealed, the consortium expects to produce 2.5 million tonnes of iron ore per year from the blocks in the Hajigak deposit. It is located in mountainous Bamiyan, where Afghanistan's famous ancient Buddha statues once stood in the cliffs before their destruction by the Taliban.
Indian steel companies have had to slow their expansion plans at home as legal and bureaucratic delays in starting or expanding mines have delayed supply of iron ore and coal.
$1 = 61.9550 Indian rupees Reporting by Krishna N Das and Jessica Donati, editing by William Hardy