New Delhi: An Indian government-backed group that won rights to mine Afghanistan’s biggest iron ore deposit has sought $7.8 billion in state aid and loans to develop the venture, two people with direct knowledge of the plan said.

India’s steel ministry backs the proposal by the Afghan Iron and Steel Consortium, which comprises seven companies led by state-owned Steel Authority of India Ltd (SAIL), the people said, declining to be identified because details of the plan are confidential. The ministry will seek approvals from the foreign and finance ministries, they said, without giving a timeframe.

Seeking funds: SAIL chairman C.S. Verma says it will be difficult to raise debt for the Afghanistan project .(Ramesh Pathania/Mint)

“We have told the government that it will be difficult to raise debt for the Afghanistan project and the government should help us in getting that funding either through sovereign guarantees or any other means," SAIL chairman C.S. Verma said by telephone on Thursday, declining to give details.

The group includes state-run companies Rashtriya Ispat Nigam Ltd and NMDC Ltd, and non-state companies JSW Steel Ltd, JSW Ispat Steel Ltd, Jindal Steel and Power Ltd and Monnet Ispat and Energy Ltd. Seshagiri Rao, chief financial officer for JSW Steel and JSW Ispat, didn’t answer four calls to his mobile phone. Spokespersons for the other companies and the steel ministry declined to comment on the details of the plan.

Shares gain

Shares of SAIL, India’s second-largest producer, climbed as much as 3.13% to 82.50, the highest since 9 December, and closed 80.10 in Mumbai. NMDC, the nation’s biggest iron ore miner, rose as much as 5.9%, the most in eight weeks, while Monnet Ispat gained as much as 8.7%, the most in nearly 18 months.

The group is seeking $5.5 billion of 30-year interest-free loans to fund the debt component of a planned 6 million-tonnes-a-year steel plant and $2.35 billion in aid for building an 800 megawatts power plant, railway, road and power transmission lines around the project, the two people said. The seven companies will contribute about $3.2 billion toward equity in the venture, they said.

“The consortium will request for sovereign guarantees for providing financial assistance to the consortium by way of interest-free long-term loan, grant-in-aid, etc., for steel, infrastructure and port related projects," SAIL said in a 30 November statement.

Rugged mountains

Afghan President Hamid Karzai’s cabinet last month awarded the Afghan Iron and Steel Consortium the rights to mine three out of four blocks of Hajigak, a series of rugged mountain ridges 100km west of Kabul. The deposit holds an estimated 1.8 billion tonnes of ore, almost as big as India’s largest iron ore mine.

The group has separately proposed building a 900km railway line from Bamiyan in Afghanistan to Zahedan in Iran at a cost of $4.3 billion. The railway line will help ship ore from Hajigak back to India via Iran.

The Indian venture overtakes Metallurgical Corp. of China’s plan to spend $2.9 billion on the Aynak copper deposit as the biggest overseas investment in Afghanistan. The Chinese state company won the right in 2007 to mine the biggest copper deposit in Afghanistan by pledging to build a coal mine, power plant, smelter and railroad.

This year, China National Petroleum Corp. offered the highest royalty and a refinery to win Afghanistan’s first oilfield auction last month, using a strategy that helped Chinese companies gain access to African resources. Chinese companies have announced $43.35 billion in energy and mining acquisitions overseas this year, compared with $3.91 billion by Indian companies, according to data compiled by Bloomberg.