Indian mining tycoon’s story of woe in South America’s ‘Switzerland’

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Uruguay sells itself to buyers because the Switzerland of Latin America. Many enterprise folks hail it as a beacon of sound authorities in a area beset by corruption and turmoil.

Indian mining tycoon Pramod Agarwal describes that popularity as “eyewash”. His decade-long try to develop a world-class iron ore mine within the South American beef-exporting nation collapsed in 2016 amid acrimony and he misplaced his complete funding of $365mn. A Paris enchantment court docket is because of rule in October on whether or not a tribunal ought to hear his $3.5bn compensation declare.

“We wish Uruguay to understand that they’ve expropriated the asset,” Agarwal instructed the Monetary Instances over breakfast in a Mayfair membership. “What they did was flawed . . . it’s towards all worldwide regulation.”

Uruguay has strongly rejected Agarwal’s claims, saying it was his personal fault that his large Valentines undertaking didn’t proceed, that there was no expropriation and that he’s not entitled to compensation. It stoutly defends the nation’s pro-business reputation.

“The fact is that Uruguay is a rustic pleasant to funding due to its custom of a consolidated system of regulation and respect for guidelines, which is recognised nationally and internationally,” the Uruguayan embassy in London mentioned.

Some of the land for the Valentines project
The Valentines undertaking would have been one of many world’s largest high-grade iron ore mines and Uruguay’s largest overseas funding © Minera Aratiri

The story of Agarwal’s battle with Uruguay, which he has not spoken about publicly earlier than, is a uncommon assault on the nation’s investment-friendly popularity. It additionally raises questions on whether or not a serious mining undertaking can reach a primarily agricultural nation.

Developed by Aratirí, a subsidiary of Agarwal’s firm Zamin Ferrous, Valentines was to be one of many world’s largest high-grade iron ore mines and at $3bn it will have been the most important overseas funding ever in Uruguay. Historically a farming and tourism nation, Uruguay has lately constructed a popularity as a tech hub — Microsoft lately selected the nation as a location for considered one of its synthetic intelligence centres — however has little historical past in mining.

Agarwal hoped to vary that when he opened talks in 2006. Reserves within the Valentines deposit had been confirmed to be 2.5bn tonnes. Manufacturing was meant to begin in 2015 with the ore pumped by means of an underground pipeline to a specifically constructed port at a price of 18mn tonnes a yr, growing to 36mn. At that capability, it will have produced greater than Anglo-American’s large Minas-Rio mine in Brazil and generated billions of {dollars} in royalties over its 20 to 30 yr lifespan.

A facility at the Valentines project in Uruguay
A facility on the Valentines undertaking, which was developed by Aratirí, a subsidiary of Agarwal’s firm Zamin Ferrous © Minera Aratiri

Uruguay’s leftwing president on the time, José Mujica, welcomed the undertaking enthusiastically, in keeping with Agarwal. They met “perhaps 15 occasions” because it took form. “I used to go to Montevideo each month,” he recalled. Mujica “used to fulfill me, give me his well-known bear hug and focus on the undertaking . . . he used to get fairly excited”.

A spokesperson for Mujica, 87, mentioned the previous president was not taking media requests at current due to the sick well being of his spouse, the previous first woman Lucía Topolansky. The Uruguayan embassy in London mentioned Agarwal’s account of Mujica’s actions “is an affirmation which doesn’t correspond to actuality”.

Uruguay’s mining ministry declined to touch upon the Aratirí case. No additional particulars had been offered by the workplace of present president Luis Lacalle Pou, a pro-market politician inaugurated in 2020.

A map of Uruguay showing the location of the ill-fated Valentines iron ore mining project. Mines in Durazno and Florida were set to ship iron ore to an export terminal on the east coast in Rocha

On the coronary heart of the long-running dispute is Agarwal’s allegation that the federal government’s necessities for the Valentines undertaking stored altering. He believes this was due to advisers who had been extra leftwing than the then president, a former guerrilla who adopted a modest way of life in workplace and earned a world popularity for humility.

Agarwal mentioned the placement of the port required to ship the massive portions of ore offered a serious complication. “Mujica himself instructed me: ‘You’re taking this explicit [site for a] port’,” he mentioned. “We spent a fortune to do an environmental influence examine and feasibility examine.” Then, Agarwal claims, the federal government determined it needed an even bigger port that might deal with different varieties of cargo and ordered him to develop it in a unique place, requiring recent research.

A mining regulation handed in 2013, following an earlier transfer to extend charges and authorities royalties, was a serious bone of competition. It required large projects to pay a yearly charge, a 25 per cent tax on company earnings and one other tax of as much as 38 per cent on earnings. It additionally toughened environmental requirements.

“Whereas this was a impartial regulation on its face, the one undertaking on the time which certified was the Zamin Valentines undertaking,” mentioned Agarwal’s lawyer Viren Mascarenhas. “This regulation imposed sure onerous circumstances but additionally required that the federal government and the applicant execute a concession contract inside a sure time. What the federal government did then . . . was they ran [down] the clock on the negotiations in order that . . . they may stroll away.”

He added that Agarwal couldn’t finalise the negotiations as a result of the Uruguayan authorities stored altering the port location, triggering a necessity for recent research on feasibility and environmental influence and making it not possible to fulfill the deadline. By 2015, Mascarenhas mentioned the message from the federal government was: “We’re carried out with the method, you simply didn’t get to the end line, it’s your fault. That’s how they effectuated the expropriation.” 

As soon as Aratirí’s negotiation interval lapsed in November 2015, Uruguay proceeded to register Aratirí’s areas within the Vacancies Registry and to revoke the corporate’s mining titles, utilizing provisions of the brand new mining regulation.

In 2016, Agarwal tried unsuccessfully to promote his mining rights. “Uruguay then made it not possible for Aratirí to appoint a successor, thus finishing its destruction and takeover of Aratirí’s undertaking,” mentioned Enrique Molina, one other of Agarwal’s attorneys.

Uruguay’s management had additionally modified. A brand new president, Tabaré Vázquez, took workplace in 2015 and Agarwal mentioned that not like Mujica, Vásquez had no real interest in assembly the mining tycoon. Vásquez died of most cancers months after leaving workplace in 2020.

José Mujica
Agarwal says former president of Uruguay José Mujica, pictured, was supportive of the Valentines undertaking © Roberto Serra/Iguana Press/Getty Photographs

These within the Uruguayan capital who’ve adopted the drama are divided about what it says in regards to the ease of investing within the nation, particularly given the sheer scale of the undertaking.

Marcelo Mercant Santa Cruz, president of the British-Uruguayan chamber of commerce in Montevideo, mentioned the Aratirí undertaking was “an exception” to a typically very beneficial enterprise surroundings in Uruguay.

“It was a fancy undertaking in an business which has prompted its share of controversy internationally,” he mentioned. “What some enterprise folks see as slowness is the truth is a part of the ensures of the rule of regulation in Uruguay.”

Liliana Buchtik, a danger advisor in Montevideo, famous that “mining shouldn’t be a really developed business in Uruguay”, including: “Maybe the earlier authorities was too formidable to assume we may have a undertaking of such scale. Mining shouldn’t be a well-liked business amongst Uruguayans typically.”

Diplomats in Montevideo, in the meantime, additionally had their doubts. “There was a certain quantity of scepticism in regards to the capability of Uruguay to ship a undertaking of this scale,” one envoy recalled. “I don’t assume both facet totally understood the capability of the opposite to do what was required.” 

Regardless of Uruguay’s makes an attempt to advertise itself as a haven for funding, overseas cash has not poured in over current years. Based on figures from its central financial institution, the whole inventory of overseas direct funding has declined from a peak of $33.4bn in 2014 to $29.6bn in 2020.

Agarwal had already skilled a authorized dispute earlier than, when Zamin litigated in London towards ENRC over a part of the cost for the $730mn sale of its stake in a Brazil undertaking in 2010. That dispute ended with a settlement, however the arbitration declare he launched towards Uruguay has proved to be extra tortuous.

Agarwal filed his declare in 2017 underneath the funding safety treaty between the UK and Uruguay. The case rested on the truth that the corporate controlling the Uruguayan property was held by a Cayman Islands belief within the identify of Agarwal’s kids, who’re British nationals.

In 2020, the arbitration tribunal dominated that for the reason that kids’s curiosity within the belief didn’t in itself represent an funding, they may not convey a compensation declare underneath the treaty.

The belief had shares in Zamin Ferrous, the mother or father firm controlling the Uruguayan mining property, however neither the mother or father nor the belief had been UK-based.

“Though some could view this as a dismissal on a technicality, BITs [bilateral investment treaties] by their phrases have limits on who falls underneath their umbrella,” mentioned Sergio Galvis, who leads the Latin America apply at US regulation agency Sullivan & Cromwell. “This implies buyers searching for political danger safety by means of a BIT want to contemplate how their property are held.”

Now, Agarwal is pinning his hopes on the Paris enchantment court docket. If it guidelines that the arbitration tribunal erred in deciding it didn’t have jurisdiction to contemplate his declare, he’ll as soon as once more be capable to struggle for compensation.

The Indian tycoon, who is predicated within the UK, mentioned he not held any mining property and claimed he had been ruined by the actions of the Uruguayan authorities. He mentioned he was compelled to promote his Regent’s Park mansion for £26mn in 2016 following his South American misfortune.

“The funding was made,” mentioned Agarwal. “The funding can not simply go ‘pouf’. Anyone has to take accountability.”

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