Business

The miserable story of Indian mining tycoon in ‘Switzerland’ South America

Uruguay sells itself to investors as the Switzerland of Latin America. Many business people hail it as a beacon of healthy government in an area beset by corruption and chaos.

Indian mining magnate Pramod Agarwal describes that reputation as an “eyewash”. His decades-long effort to develop a world-class iron ore mine in the South American beef-exporting nation collapsed in 2016 amid difficulties and he lost his entire 365 million investment. USD. An appeals court in Paris will rule in October on whether a court should hear his $3.5 billion claim.

“We want Uruguay to realize that they have appropriated property,” Agarwal told the Financial Times over breakfast at a Mayfair club. “What they did was wrong. . . it violates all international law. “

Uruguay strongly denied Agarwal’s claims, saying it was his own fault that his massive Valentines project did not proceed, that there was no appropriation and that he was not compensated. It resolutely defends the country business-friendly reputation.

The Uruguayan Embassy in London said: “The reality is that Uruguay is an investment-friendly country because of its tradition of unified legal system and respect for the rules, which are recognized nationally and internationally.” .

Some land for the Valentines . project
The Valentines project will be one of the world’s largest high-grade iron ore mines and Uruguay’s largest foreign investment © Minera Aratiri

The story of Agarwal’s battle with Uruguay, which he has not spoken about publicly before, is a rare attack on the country’s investment-friendly reputation. It also raises the question of whether a major mining The project could be successful in a predominantly agricultural country.

Developed by Aratirí, a subsidiary of Agarwal’s Zamin Ferrous company, Valentines was once one of the world’s largest high-grade iron ore mines, and at $3 billion it would be the largest foreign investment. so far in Uruguay. Traditionally an agricultural and touristic country, Uruguay has recently built a reputation as a technology hub – Microsoft recently selected the country as the location for one of its artificial intelligence hubs. himself – but has very little history in the field of mining.

Agarwal hopes to change that when he opens negotiations in 2006. Reserves in Valentines have proven to be 2.5 billion tons. Production is scheduled to begin in 2015 with ore pumped through an underground pipeline to a specially built port at a rate of 18 million tonnes a year, rising to 36 million. At that capacity, it would produce more than the huge Anglo-American Minas-Rio mine in Brazil and generate billions of dollars in royalties over its 20 to 30-year life.

A facility at the Valentines project in Uruguay
A facility at the Valentines project, developed by Aratirí, a subsidiary of Agarwal’s Zamin Ferrous company © Minera Aratiri

The leftist president of Uruguay at the time, José Mujica, enthusiastically welcomed the project, according to Agarwal. They met “maybe 15 times” when it took shape. “I used to go to Montevideo every month,” he recalls. Mujica “used to meet me, hug his famous bear and discuss the project. . . he used to be quite excited.”

A spokesman for Mujica, 87, said the former president is currently not taking media requests because of the health of his wife, former first lady Lucía Topolansky. The Uruguayan embassy in London said Agarwal’s account of Mujica’s actions “is an assertion that is inconsistent with reality”.

Uruguay’s mining ministry declined to comment on the Aratirí case. No further details were provided by the office of incumbent president Luis Lacalle Pou, a pro-market politician, which was inaugurated in 2020.

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

At the heart of the long-running controversy is Agarwal’s allegation that government requirements for the Valentines project are constantly changing. He believes this was because the advisers were more leftist than the then-president, a former guerrilla who adopted a modest lifestyle in office and was known internationally for his modesty.

Agarwal said the location of the port required to transport the huge amount of ore caused a big complication. “It was Mujica who said to me: ‘Look at this specifically [site for a] port’, he said. “We spent a fortune doing an environmental impact study and a feasibility study.” Then, Agarwal claimed, the government decided it wanted a bigger port that could handle other types of cargo and asked him to develop it somewhere else, asking for new studies.

A mining law passed in 2013, following an earlier move to increase government fees and royalties, is a major source of controversy. It require large projects to pay an annual fee, a tax of 25% on corporate profits and another tax of up to 38% on profits. It also strengthens environmental standards.

Agarwal attorney Viren Mascarenhas said: “Although this was a neutral law, the only project at the time that qualified was the Zamin Valentines project. “This law imposes some difficult conditions but also requires the government and the applicant to execute the franchise agreement within a certain period of time. What the government did then. . . they ran [down] clock on negotiations to. . . they can leave. “

He added that Agarwal was unable to finalize the negotiations because the Uruguayan government kept changing the port’s location, leading to the need for new studies on feasibility and environmental impact and making it impossible to meet the deadline. . By 2015, Mascarenhas said the message from the government was: “We finished the process, you didn’t finish, it’s your fault. That’s how they do the expropriation. ”

When Aratirí’s negotiating period expired in November 2015, Uruguay proceeded to register Aratirí’s areas in the Registry of Vacancies and revoked the company’s mining title, using the provisions of the Aratirí. new mining law.

In 2016, Agarwal tried to sell his mining rights but failed. “Uruguay subsequently made it impossible for Aratirí to nominate a successor, thus completing the demolition and taking over of Aratirí’s project,” said Enrique Molina, another lawyer for Agarwal. by Agarwal said.

Uruguay’s leadership has also changed. A new president, Tabaré Vázquez, took office in 2015, and Agarwal says that unlike Mujica, Vásquez has no interest in meeting the mining magnate. Vásquez died of cancer a few months after leaving office in 2020.

Jose Mujica
Agarwal said former Uruguayan president José Mujica, pictured, supported the Valentine’s Day project © Roberto Serra / Iguana Press / Getty Images

Those in the Uruguayan capital who have watched the film are sharing what it says about the ease of investing in the country, especially given the sheer size of the project.

Marcelo Mercant Santa Cruz, president of the Anglo-Uruguay chamber of commerce in Montevideo, said the Aratirí project was “an exception” to the generally very favorable business environment in Uruguay.

“It is a complex project in an industry that has caused controversy around the world,” he said. “What some business people see as sluggish is in fact part of the guarantees of the rule of law in Uruguay.”

Liliana Buchtik, a risk consultant in Montevideo, noted that “mining is not a very developed industry in Uruguay”, adding: “Perhaps the previous government was too ambitious to think that we could have it. There could be a project of this size. Mining is not a popular industry for Uruguayans in general.”

Meanwhile, diplomats in Montevideo are also skeptical. One envoy recalled: “There was some skepticism about Uruguay’s ability to carry out a project of this scale. “I don’t think either side fully understands the other’s ability to do what is required.”

Despite Uruguay’s efforts to promote itself as an investment haven, foreign money has not poured in in recent years. According to central bank data, total foreign direct investment has fallen from a peak of $33.4 billion in 2014 to $29.6 billion in 2020.

Agarwal has experienced a legal dispute before, when Zamin sued in London against ENRC over part of a payment for the sale of his $730 million stake in a project in Brazil in 2010. That dispute ended in a settlement, but the arbitration petition he brought against Uruguay proved more tortuous.

Agarwal filed his claim in 2017 under an investment protection treaty between the UK and Uruguay. The case is based on the fact that the company controlling the Uruguayan assets is held by a Cayman Islands trust in the name of Agarwal’s children, who are British nationals.

In 2020, the arbitral tribunal ruled that since the interests of children in the trust were not an investment in itself, they could not make a treaty claim.

The trust has a stake in Zamin Ferrous, the parent company that controls Uruguayan mining assets, but both the parent company and the trust are based in the UK.

“Although some might see this as technical exclusion, BITs [bilateral investment treaties] because their terms are limited on who is under their umbrella,” said Sergio Galvis, head of Latin American practice at the US law firm Sullivan & Cromwell. “This means that investors seeking political risk protection through BIT need to consider how their assets are held.”

Now, Agarwal is pinning her hopes on the Paris court of appeal. If it provided that the arbitral tribunal erred in deciding it did not have the authority to consider his claim, he would again be able to fight for compensation.

The Indian tycoon, now based in the UK, said he no longer holds any mining assets and claims that he has been ruined by the actions of the Uruguayan government. He said he was forced to sell his Regent’s Park mansion for £26m in 2016 following his misfortune in South America.

“The investment has been made,” Agarwal said. “The investment cannot just go in the direction of ‘failure’. Someone has to take responsibility. “

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