(Recasts with Afghan ministry comment)
By Krishna N Das and Jessica Donati
NEW DELHI/KABUL, Dec 31 (Reuters) - An Indian consortium has slashed a planned $10.8 billion iron ore investment in Afghanistan by 80 percent because it has been unable to get funding for the project.
The consortium has proposed new terms which would see just 130.57 billion rupees ($2 billion) invested, according to figures released on Tuesday in India's steel ministry year-end report.
Led by state-owned Steel Authority of India Ltd (SAIL) , the group was forced to renegotiate the terms of the deal with the Afghan government after India's finance ministry refused to fund the project.
The original proposal called for investment in three iron ore blocks at Hajigak in Afghanistan and in a 6 million-tonne-per-year (MTPA) steel plant.
But the finance ministry told the consortium, according to an official involved, to draw up a fresh viability study.
Under the new proposed terms, the size of the plant would fall to 1.2 MTPA.
Afghanistan's Ministry of Mines said the final sum had not been agreed and it had not been notified by the consortium.
"They have not sent any official letter to us about changing the investment money from $10 billion to $2 billion," a ministry spokesman said, adding that negotiations were under way.
"The negotiation is in progress and every day we see good results," he said.
The Indian steel ministry confirmed that talks were under way.
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.
Afghanistan is looking to mining to help wean the country off international aid after more than 12 years of war.
But despite the lure of untapped natural resources estimated to be worth more than $1 trillion by the U.S. government, only a handful of major projects have been signed and most have ground to a halt over the past year.
In August, the government said that Chinese firms were demanding a review of a landmark deal to produce copper in Afghanistan agreed in 2007.
The Chinese group was to start producing copper by 2014, but the venture is now not expected to begin production until 2019, according to an independent monitor.
Once production starts, the mine will generate at least $250 million per year and create around 75,000 jobs, according to the World Bank.
$1 = 61.9550 Indian rupees Reporting by Krishna N Das and Jessica Donati, editing by William Hardy and Jason Neely