Kolkata, Mar 19: The politics of iron ore is about to claim its first victim - the 4 million tonne per annum (mtpa) greenfield joint venture between National Mineral Development Corporation (NMDC), Steel Authority of India Ltd (SAIL) and Rashtriya Ispat Nigam Ltd (RINL).

The steel ministry, under whose administrative charge SAIL and RINL fall, has asked the two companies to stay away from the proposed steel plant in Chhattisgarh, for which a memorandum of understanding (MoU) was signed between SAIL, RINL and NMDC last year.

The three public sector companies were equal partners in the MoU.

The steel ministry's reasoning is that neither SAIL nor RINL could afford to lose focus from mega investments involved in expanding their own capacity expansions.

"SAIL has ongoing expansion projects of Rs 40,000 crore and RINL is investing Rs 8,000 crore. These are big-ticket projects and must be completed by 2010 and, therefore, neither of the firms can afford to shift focus to other projects. No delays in their sanctioned projects will be acceptable and this has been conveyed to SAIL and RINL," steel ministry officials said.

The proposed joint venture between the public sector steel and mining companies envisaged that, while SAIL and RINL, with their expertise in steel-making, would lead in the preparation of feasibility report, site selection and project implementation, NMDC, with its expertise in mining and as a major supplier of ore to non-integrated steel companies, would lead in obtaining land, mining lease and statutory clearances apart from operating the mines.

Though SAIL has its own captive mines, RINL is dependent on NMDC for ore and, therefore, is more exposed to the current skyrocketing prices.

The move to scupper SAIL and RINL's partnership with NMDC is a direct fallout of the simmering spat between the ministries of steel and mines.

While the ministry of steel wants to rein in domestic iron ore prices to prevent the cost-push hike in steel prices, NMDC, under the ministry of mines, is in no mood to agree. Instead, it is planning massive price hikes to ride the boom in the international iron ore business.

NMDC has already announced that it would increase ore prices by 50% on the grounds that this would be in line with global trends where Japanese steel mills have agreed to a 65% hike in ore prices from Australian mining majors.

It has already implemented one dose of price hikes for April deliveries, with lump ore up by Rs 1,527 per tonne and fines by Rs 1,222 per tonne.

Domestic steel companies are up in arms against this not only because of the quantum of the planned hike but also because of NMDC's alleged reluctance in committing supplies through long-term contracts and its preference for benchmark prices based on spot tenders.

Over the past few months, the steel ministry has held several rounds of talks with steel companies to impress on the need to rein in the price of finished steel. It even held out threats of a regulatory body for steel. Producers were also coaxed into a partial rollback of around Rs 500 per tonne.

But steel companies argued that input costs (ore and coking coal) had risen by Rs 8,000 per tonne since October 2007 against which steel prices were increased by Rs 2,500 per tonne in January and by Rs 3,000 per tonne early this month, still leaving unrecovered input costs.

It was against this backdrop that the steel ministry had been aggressive in influencing public sector mining companies to hold iron ore prices.

But the latter's unwillingness to be part of such a strategy and forgo windfalls from rising ore prices may have forced the steel ministry to scuttle the partnership with NMDC.