* Sources say meeting to approve deal set for Tuesday
* Billionaire Mittal met steel secretary, SAIL last week
* Venture aims to cut steel imports from Japan, S.Korea
* Commercial terms held up deal first outlined in 2015
NEW DELHI, Dec 7 (Reuters) - State-owned Steel Authority of India Ltd (SAIL) is set to approve a long-proposed $1 billion joint venture with ArcelorMittal at its board meeting next week, three sources with direct knowledge of the matter told Reuters.
The decision to approve the deal was reached after talks between ArcelorMittal's billionaire Chairman Lakshmi Mittal, India's Steel Secretary Aruna Sharma and SAIL Chairman P.K. Singh at a meeting last week in New Delhi.
The much-delayed collaboration to make automotive-grade steel is nearing realisation after legal teams from SAIL and ArcelorMittal finalised a joint term-sheet in talks mediated by a government think-tank in the past two weeks, the sources said.
"The joint term-sheet has been prepared and it should hopefully reach its logical end soon," a senior government official involved in the talks said. "SAIL has called an emergency board meeting to approve the joint venture."
The official did not give a day for the meeting, but two sources with knowledge of the talks said it would be Tuesday. The sources asked not to be named because there had not been any official announcement.
SAIL, ArcelorMittal and the steel ministry did not immediately respond to requests for comment.
India is banking on the partnership to cut imports of high-grade auto steel that mostly comes from Japan and South Korea. India is a major automobile producer and exporter.
SAIL and ArcelorMittal signed a preliminary understanding in 2015, but disagreements over key commercial terms have delayed the venture that would give the Luxembourg-based company a foothold in the world's fastest growing major steel market.
The venture agreement was extended multiple times, and the last extension lapsed on Nov. 30, the sources said.
One of the key points of disagreements between SAIL and ArcelorMittal had been on internal rate of returns and a "non-compete" clause.
The sources said the two companies were still exploring the location for the joint venture company in Maharashtra and Gujarat states in the west, and Andhra Pradesh in the south.
"They want the location to be near to a port," the government official said.
ArcelorMittal is also planning to bid for debt-ridden Indian steel firms such as Bhushan Steel Ltd, Essar Steel and Bhushan Power and Steel, Reuters reported in September.
Reuters has also reported that Japan's JFE Holdings Inc and India's JSW Steel Ltd are lining up a joint bid with a private equity firm for the assets of Bhushan Steel.
ArcelorMittal, known for turning around troubled steel assets, had earlier run into disagreement with SAIL over its intentions to bid for Indian companies. (Reporting by Neha Dasgupta; Editing by Krishna N. Das and Edmund Blair)