Iron ore struggles to clamber out of the pits on restricted e-auction

Restrictions on participation in e-auctions and the ban on mining in Goa are weighing down the industry

Electronic auction finds its sanctity from right price discovery of a commodity through bidding by actual users and traders in an internet-enabled marketplace. To give one example, spot and forward e auction of coal continues to fetch attractive prices for Coal India Limited (CIL) as it encourages offer of bids by a maximum number of buyers and is also open to system reforms based on feedback from all stakeholders, including auction participants. 

During 2017-18, CIL sold 55.1 million tonnes (mt) of coal under spot e-auction fetching it a premium of 66 per cent over notified prices. In other coal auctions too, including forward e-auction, CIL fetched handsome premiums over base prices. This, however, is not the case with the court mandated compulsory e-auction of iron ore mined in Karnataka. The reason being participation in iron ore e-auction is restricted to the state-based actual users of the commodity, meaning iron and steel producers. 

Even after the Supreme Court granted some major relief to the industry in December 2017 by allowing it to produce more ore, taking cognisance of significant improvements in infrastructure and estimation of reserves, the miners in Karnataka are finding the remaining restrictions, particularly relating to disposal of ore too oppressive. Miners make the point that by not allowing traders to offer bids in e-auction, they are denied the “right discovery of Karnataka origin iron ore prices.” 

Besides auction participation restrictions, price discovery of Karnataka ore is distorted by the local steel industry bringing in large quantities of foreign origin ore and also the mineral from other Indian states. According to Karnataka miners, while the state demand for ore in 2018-19 is an estimated 35.5 million tonnes (mt), the supply will be 45.5 mt, including 35 mt from e-auction, steel mill captive production of 4 mt, 5 mt of imports and procurement of 1.5 mt from other states. Ore supply is going to be so much in excess of demand, auction prices will perforce stay low to the disadvantage of miners. 

What, however, cannot be denied is that because of the sins of the past by way of extracting more ore than what rules permitted, causing damage to the environment, and a non-supportive infrastructure, the mines not only in Karnataka but also in Goa and Odisha were heavily censured by the court, including stoppage of mining and cancellation of leases. Errant miners were brought to book by relentless campaign by non-governmental organisations such as Samaj Parivartan, Goa Foundation and Common Cause. Under duress, the mining industry was, however, found quick to set its house in order.

It is because of the change in ground reality based on which Karnataka annual iron ore production cap was raised to 35 mt from 30 mt by a Supreme Court order of December 17, 2017, that the Federation of Indian Mineral Industries (FIMI) is now seeking relaxation of controls relating to ore movement outside the state, including exports to foreign countries and e-auction. Director General of FIMI, RK Sharma, says: “Neither iron ore nor pellets made from local ore are allowed to be exported. We are saying let exports of pellets made in the districts of Ballari, Chitadurga and Tumakuru start in view of easing in supply of iron ore. Export ban is leading to piling up of iron ore at mine sites, which is bad for the environment.” 

In a submission to the Supreme Court, FIMI has said the central and state governments are in favour of resumption of pellet exports. Incidentally, the court-appointed central empowered committee too believes that exports could now be resumed. Pointing to certain anomalies in the prevailing situation, Sharma says while miners and pellet makers are not allowed to take their stuff outside Karnataka, steelmakers using local ore are free to export their products. “Karnataka steelmakers are having the best of both worlds. While they alone can use locally mined ore, they also have the advantage of bringing shiploads of Australian ore by paying an import duty of only 2.5 per cent. Exports of ore from other parts of the country with an iron content of over 58 per cent, however, invite a duty of 30 per cent. The high duty is crimping exports,” says an industry official. 

Describing iron ore imports by India, which is sitting on proven reserves of 28 billion tonnes and where production is well in excess of domestic requirements, ideally dispensable, FIMI wants a customs duty of 30 per cent on both ore and pellet to discourage their use here.  The situation in Goa where iron ore was traditionally produced almost exclusively for exports turned acutely grave with the industry shutting operation since March 16 on Supreme Court quashing the second renewal of 88 mining leases. 

As the mines are shut, nearly 300,000 people, including 60,000 with direct employment in the mines are denied livelihood. This is happening in a state with a small population of 1.8 million but with a high unemployment rate of close to 10 per cent. Iron ore mining in the hinterland and coastal tourism sustain the economy of Goa and are principal revenue sources for the state exchequer. Under present dispensation, the closed mines can come back to life only on grant of fresh leases (not renewals) and environmental clearances. Holding auctions and the subsequent required clearances for restarting mines is an inordinately long process going up to four years. If this is going to be the case, then that will spell ruin for the Goa mining sector and great privation for large numbers of people. 

Going back into history, the erstwhile Portuguese rulers granted iron ore mining leases in Goa on perpetual concession basis. New Delhi converted these into mining leases under the 1987 abolition Act but with retrospective effect from December 12, 1961, coinciding with the liberation of Goa. The mines and minerals development and regulation (MMDR) amendment Act, 2015, says leases granted ahead of the amendment will have a validity of 50 years from the date of grant. There is a broad agreement among all political parties and industry stakeholders in Goa that the only way to resume mining operations quickly would be to make suitable amendments to the abolition Act and MMDR amendment Act so that the mining leases in the state are considered granted from the date of the Abolition Act. Mine leases will then get extended automatically to 2037 to everyone’s relief. 

Ore content (In billion tonnes) 

India’s iron ore reserves: 33.28 bt

Share of Karnataka Hematite: 2.47 bt  Magnetite: 7.8 bt 

Share of Goa Hematite: 1.18 bt  Magnetite: 0.26 bt
 

Source: IBM