Bolivia has said that the multi-billion dollar contract it signed with India's Jindal Steel to develop an iron ore mine has not been rescinded, but the steel company would have to pay a penalty for not fulfilling the terms of the agreement.
"The contract will continue but there is a penalty there because the partners need to respect their contract in Bolivia and the Bolivian people," Juan Evo Morales, President of Bolivia told reporters at the UN headquarters where he was speaking on a different issue of the recently concluded climate change conference in Cochabamba.
"We need some kind of guarantee and Jindal company has not fulfilled its contract," he added. In 2007, Jindal signed a joint venture agreement with the government to develop the El Mutun mine - one of the world's largest iron ore reserves - that may produce as much as two million tonnes of iron ore in its first year.
In April, reports emerged that the parties were having disagreements over the contract and the Bolivian government warned the steel company to either stick to the contract or leave.
Media reports noted that Jindal wanted to invest $ 2.1 billion in El Mutun but wanted to produce 40 per cent less steel and around 20 per cent less iron a year than was agreed in the original contract.
Last week, state newswire ABI reported that Bolivia's iron ore mining venture with Jindal may collapse and that the Indian company would have to pay 800 million dollars in damages.
The damages include a $600-million investment that Jindal would have made in the first three years of the project and $200 million in revenues that the state would have got, according to the Bolivian mining minister Jose Pimentel.