Mumbai: The Essar Group’s quest for iron ore remains elusive with Zimbabwe declining to supply the resource as envisaged in a contentious deal between the Indian conglomerate and the African state.

The Essar Group may have to renegotiate the terms of the contract if it wants to continue with its plans in the African nation.

Zimbabwe won’t sell 90% of its iron ore resources to one company, mines and mining development deputy minister Gift Chimanikire said. He added that the provision in the current pact that allowed this was wrong.

A file photo of a steel plant

An Essar Group spokesman said it was against company policy to comment on speculative reports.

“Essar continues to hold discussions with the Zimbabwe government over a number of issues relating to the Zisco (Zimbabwe Iron and Steel Co.) transaction, and we continue to make progress. However, we would not like to comment on any specific points," the spokesman said.

Essar’s deal to gain access to a captive source of iron ore has been caught in political crossfire ever since it was signed in early August.

The Essar Group and Zimbabwe announced the launch of NewZim Steel Pvt. Ltd and NewZim Minerals Pvt. Ltd to revive Zisco, committing an $850 million investment by Essar Africa with the promise of job creation.

The shareholding structure in the two joint ventures was envisaged at 60:40 and 80:20, respectively.

Essar also committed to revive Zisco to its original capacity and unveiled a plan to double annual capacity to 2.5 million tonnes.

NewZim Minerals was to undertake exploration and technology assessment, with a testing programme commencing in the first 18 months. After this, depending on the outcome, it was to construct a large-scale beneficiation project and related infrastructure for an estimated expenditure of $3.5 billion.

Beneficiation is a process in which low-grade iron ore is upgraded to higher iron content through concentration and elimination of impurities.

Some members of Zimbabwe’s coalition government have questioned the deal, even as the strife-torn nation’s President Robert Mugabe has called for a general election in early 2012.

Industry and commerce minister Welshman Ncube led negotiations when the deal was signed.

Ncube is part of the Mutambara faction of the Movement for Democratic Change (MDC-M), which split in 2005 from the original Movement for Democratic Change, called MDC-T, headed by current Prime Minister Morgan Tsvangirai. Chimanikire belongs to MDC-T’s Tsvangirai faction.

Both factions of the MDC share an uneasy alliance with the Zanu-PF in the current coalition government.

Zimbabwe’s 87-year-old President Mugabe, the leader of the Zanu-PF party, has been ruling the country for three decades, but was forced to share power with political opponent Tsvangirai after the 2008 elections.

As no candidate received an outright majority in the first round of elections, a second was called, but Tsvangirai withdrew his candidature a week before this, citing violence against his party’s supporters.

Amid sustained international pressure, former South African president Thabo Mbeki brokered a power-sharing agreement with an arrangement, the so-called Global Political Agreement, for Mugabe to remain President while Tsvangirai was made Prime Minister.

“Resource nationalism is rising in many parts of the world where governments and other stakeholders believe that value has already been created once it’s known that resources exist, but that is a misplaced notion," said Anjani Agrawal, national leader for mining and metals sector at global consultancy Ernst and Young.

Resource nationalism refers to the recent trend of governments across the world targeting the metals and mining sector to increase revenue in the face of commodity deficits and the consequent rise in prices.

Essar Africa Holdings Ltd, a group company incorporated in Mauritius, emerged as the preferred bidder for Zisco and the iron ore resources that it owned beating the world’s largest steel maker by capacity, ArcelorMittal, and the Naveen Jindal-headed Jindal Steel and Power Ltd.