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Uruguay sells itself to buyers because the Switzerland of Latin America. Many enterprise individuals hail it as a beacon of sound authorities in a area beset by corruption and turmoil.
Indian mining tycoon Pramod Agarwal describes that status as “eyewash”. His decade-long try to develop a world-class iron ore mine within the South American beef-exporting nation collapsed in 2016 amid acrimony and he misplaced his complete funding of $365mn. A Paris attraction courtroom is because of rule in October on whether or not a tribunal ought to hear his $3.5bn compensation declare.
“We want Uruguay to grasp that they’ve expropriated the asset,” Agarwal instructed the Monetary Instances over breakfast in a Mayfair membership. “What they did was unsuitable . . . it’s in opposition to all worldwide legislation.”
Uruguay has strongly rejected Agarwal’s claims, saying it was his personal fault that his big Valentines venture didn’t proceed, that there was no expropriation and that he’s not entitled to compensation. It stoutly defends the nation’s pro-business reputation.
“The truth is that Uruguay is a rustic pleasant to funding due to its custom of a consolidated system of legislation and respect for guidelines, which is recognised nationally and internationally,” the Uruguayan embassy in London mentioned.
The story of Agarwal’s battle with Uruguay, which he has not spoken about publicly earlier than, is a uncommon assault on the nation’s investment-friendly status. It additionally raises questions on whether or not a serious mining venture can achieve a primarily agricultural nation.
Developed by Aratirí, a subsidiary of Agarwal’s firm Zamin Ferrous, Valentines was to be one of many world’s greatest high-grade iron ore mines and at $3bn it will have been the biggest overseas funding ever in Uruguay. Historically a farming and tourism nation, Uruguay has just lately constructed a status as a tech hub — Microsoft just lately selected the nation as a location for one among its synthetic intelligence centres — however has little historical past in mining.
Agarwal hoped to vary that when he opened talks in 2006. Reserves within the Valentines deposit had been confirmed to be 2.5bn tonnes. Manufacturing was meant to begin in 2015 with the ore pumped by way of an underground pipeline to a specifically constructed port at a price of 18mn tonnes a 12 months, rising to 36mn. At that capability, it will have produced greater than Anglo-American’s big Minas-Rio mine in Brazil and generated billions of {dollars} in royalties over its 20 to 30 12 months lifespan.
Uruguay’s leftwing president on the time, José Mujica, welcomed the venture enthusiastically, in accordance with Agarwal. They met “possibly 15 instances” because it took form. “I used to go to Montevideo each month,” he recalled. Mujica “used to satisfy me, give me his well-known bear hug and talk about the venture . . . he used to get fairly excited”.
A spokesperson for Mujica, 87, mentioned the previous president was not taking media requests at current due to the in poor health well being of his spouse, the previous first girl Lucía Topolansky. The Uruguayan embassy in London mentioned Agarwal’s account of Mujica’s actions “is an affirmation which doesn’t correspond to actuality”.
Uruguay’s mining ministry declined to touch upon the Aratirí case. No additional particulars had been offered by the workplace of present president Luis Lacalle Pou, a pro-market politician inaugurated in 2020.
On the coronary heart of the long-running dispute is Agarwal’s allegation that the federal government’s necessities for the Valentines venture saved altering. He believes this was due to advisers who had been extra leftwing than the then president, a former guerrilla who adopted a modest life-style in workplace and earned a world status for humility.
Agarwal mentioned the placement of the port required to ship the large portions of ore offered a serious complication. “Mujica himself instructed me: ‘You’re taking this specific [site for a] port’,” he mentioned. “We spent a fortune to do an environmental influence research and feasibility research.” Then, Agarwal claims, the federal government determined it wished an even bigger port that would deal with different varieties of cargo and ordered him to develop it in a special place, requiring contemporary research.
A mining legislation handed in 2013, following an earlier transfer to extend charges and authorities royalties, was a serious bone of competition. It required large projects to pay a yearly payment, a 25 per cent tax on company income and one other tax of as much as 38 per cent on income. It additionally toughened environmental requirements.
“Whereas this was a impartial legislation on its face, the one venture on the time which certified was the Zamin Valentines venture,” mentioned Agarwal’s lawyer Viren Mascarenhas. “This legislation imposed sure onerous circumstances but in addition required that the federal government and the applicant execute a concession contract inside a sure time. What the federal government did then . . . was they ran [down] the clock on the negotiations in order that . . . they might stroll away.”
He added that Agarwal couldn’t finalise the negotiations as a result of the Uruguayan authorities saved altering the port location, triggering a necessity for contemporary research on feasibility and environmental influence and making it unattainable to satisfy the deadline. By 2015, Mascarenhas mentioned the message from the federal government was: “We’re carried out with the method, you simply didn’t get to the end line, it’s your fault. That’s how they effectuated the expropriation.”
As soon as Aratirí’s negotiation interval lapsed in November 2015, Uruguay proceeded to register Aratirí’s areas within the Vacancies Registry and to revoke the corporate’s mining titles, utilizing provisions of the brand new mining legislation.
In 2016, Agarwal tried unsuccessfully to promote his mining rights. “Uruguay then made it unattainable for Aratirí to appoint a successor, thus finishing its destruction and takeover of Aratirí’s venture,” mentioned Enrique Molina, one other of Agarwal’s attorneys.
Uruguay’s management had additionally modified. A brand new president, Tabaré Vázquez, took workplace in 2015 and Agarwal mentioned that not like Mujica, Vásquez had no real interest in assembly the mining tycoon. Vásquez died of most cancers months after leaving workplace in 2020.
These within the Uruguayan capital who’ve adopted the drama are divided about what it says in regards to the ease of investing within the nation, particularly given the sheer scale of the venture.
Marcelo Mercant Santa Cruz, president of the British-Uruguayan chamber of commerce in Montevideo, mentioned the Aratirí venture was “an exception” to a usually very beneficial enterprise atmosphere in Uruguay.
“It was a posh venture in an business which has brought about its share of controversy internationally,” he mentioned. “What some enterprise individuals see as slowness is in reality a part of the ensures of the rule of legislation in Uruguay.”
Liliana Buchtik, a danger marketing consultant in Montevideo, famous that “mining will not be a really developed business in Uruguay”, including: “Maybe the earlier authorities was too bold to assume we may have a venture of such scale. Mining will not be a well-liked business amongst Uruguayans usually.”
Diplomats in Montevideo, in the meantime, additionally had their doubts. “There was a specific amount of scepticism in regards to the capability of Uruguay to ship a venture of this scale,” one envoy recalled. “I don’t assume both facet absolutely understood the capability of the opposite to do what was required.”
Regardless of Uruguay’s makes an attempt to advertise itself as a haven for funding, overseas cash has not poured in over current years. In keeping with figures from its central financial institution, the full inventory of overseas direct funding has declined from a peak of $33.4bn in 2014 to $29.6bn in 2020.
Agarwal had already skilled a authorized dispute earlier than, when Zamin litigated in London in opposition to ENRC over a part of the fee for the $730mn sale of its stake in a Brazil venture in 2010. That dispute ended with a settlement, however the arbitration declare he launched in opposition to Uruguay has proved to be extra tortuous.
Agarwal filed his declare in 2017 below the funding safety treaty between the UK and Uruguay. The case rested on the truth that the corporate controlling the Uruguayan property was held by a Cayman Islands belief within the identify of Agarwal’s kids, who’re British nationals.
In 2020, the arbitration tribunal dominated that because the kids’s curiosity within the belief didn’t in itself represent an funding, they might not deliver a compensation declare below the treaty.
The belief had shares in Zamin Ferrous, the mum or dad firm controlling the Uruguayan mining property, however neither the mum or dad nor the belief had been UK-based.
“Though some might view this as a dismissal on a technicality, BITs [bilateral investment treaties] by their phrases have limits on who falls below their umbrella,” mentioned Sergio Galvis, who leads the Latin America apply at US legislation agency Sullivan & Cromwell. “This implies buyers in search of political danger safety by way of a BIT want to think about how their property are held.”
Now, Agarwal is pinning his hopes on the Paris attraction courtroom. If it guidelines that the arbitration tribunal erred in deciding it didn’t have jurisdiction to think about his declare, he’ll as soon as once more have the ability to combat for compensation.
The Indian tycoon, who relies within the UK, mentioned he now not held any mining property and claimed he had been ruined by the actions of the Uruguayan authorities. He mentioned he was compelled to promote his Regent’s Park mansion for £26mn in 2016 following his South American misfortune.
“The funding was made,” mentioned Agarwal. “The funding can’t simply go ‘pouf’. Any person has to take accountability.”
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