NEW DELHI (Reuters) - A proposed joint venture between state-owned Steel Authority of India Ltd (SAIL.NS) and ArcelorMittal SA ISPA.AS to build an $897 million automotive steel plant in India has hit an impasse, with the two disagreeing on key terms, officials said.
India’s biggest state-owned steel company and the world’s No. 1 producer of the metal signed a deal in May 2015 to set up a plant for automotive grades to tap rising demand in one of the world’s fastest growing steel markets and a major car export hub.
After a series of failed attempts to hammer out several sticking points - the most important being a revenue-sharing formula - negotiations have come to a standstill, the sources said.
A deadline to close the deal ends in May. ArcelorMittal declined to comment.
A SAIL spokesman said the negotiations are still in progress.
SAIL, which has been posting losses for seven straight quarters, was hoping the joint venture will help it move to higher grades of steel in the automotive segment, dominated by private players such as Tata Steel Ltd (TISC.NS) and JSW Steel Ltd (JSTL.NS).
A separate technical tie-up between South Korean steel major POSCO (005490.KS) and SAIL has also failed to take off.
A collapse of the proposed joint venture with ArcelorMittal would further hamper its efforts at a turnaround, and would add to steel ministry’s headache when the government is looking to sell its stakes in three of SAIL’s loss-making units.
Failure to close the deal would also hurt billionaire Laxmi Niwas Mittal-controlled ArcelorMittal, which had been looking at the deal as a way to expand its presence in India, one of the most lucrative markets in the world.
Late last year, India’s steel ministry expressed hopes that the joint venture would be finalised by December 2016 and last month SAIL chairman said he was seeking a fair share of return.
But talks between SAIL and ArcelorMittal hit a major obstacle when SAIL objected to a revenue-sharing structure that it believed would lead to a loss of up to 4 billion rupees ($59.69 million) a year, said three government officials, who did not wish to be identified because they are not authorised to talk to the media.
SAIL also opposed a payment timeline to access ArcelorMittal’s technology and demanded a higher price for supplying low-grade steel for the proposed joint venture, these officials said.
Further, ArcelorMittal wanted an upfront fee for its technology, while SAIL wanted to pay it over time, the officials said.
ArcelorMittal also asked for a franchise fee, which SAIL believed would be a big drain on its finances, they said.
Editing by Mayank Bhardwaj and Kim Coghill