New ground realities in iron ore

An increase in court-mandated production caps offers miners some marginal relief; export duty cuts are their next demand

For its acts of omission and commission over the years, India’s iron ore industry invited the opprobrium of the authorities. This finally resulted in the Supreme Court putting a ban on production of the steel-making ingredient in Karnataka and Goa in 2011 and 2012, respectively. Subsequently, by way of offering miners some relief, the court replaced the ban with ceiling on ore production for Karnataka at 30 million tonnes (mt) and Goa 20 at mt. In the past decade, iron ore miners at their peak extracted up to 218 mt, which met the entire requirement of local steelmakers and allowed exports of over 117 mt, capitalising on the Chinese demand surge.

What, however, detracts from this feat is the court’s observation that production cap was fixed in an environment of virtually no control as to the maximum amount of ore that a mine should yield. Mines leases then were not backed by scientific assessment of ore reserves. This, according to the court, made it ripe for miners to seek “maximum profits within the shortest possible time.” Rampant illegal mining and encroachments into forest land leading to worrisome “environmental and ecological” disturbances made judicial intervention unavoidable.

At the same time, expert reports on Karnataka, including that of the court-appointed central empowered committee (CEC), speak of significant ground-level changes since the production cap was introduced. On that basis, the reports recommended an increase in the ore output limit of the three affected districts in the state — Bellary, Chitradurga and Tumkur. 

Last month, the court passed the order of raising the cap for A and B mines — those that made marginal violations of mining rules — in Bellary by 3 mt to 28 mt and for similar types in Chitradurga and Tumkur by 2 mt to 7 mt. This was based on the CEC’s assessment of changes in assessed mineral reserves, securing additional area for overburden disposal and creation of extra transport infrastructure since the introduction of the cap. That Karnataka’s iron ore reserves now stand at 10.071 billion tonnes were an important consideration for the court. CEC’s findings about the improved state of supporting infrastructure for mining, specially the evacuation of mined ore without disturbing the environment and enhanced dumping capacity were given adequate weight. 

Encouragingly, the decision to allow Karnataka to mine an additional 5 mt ore based on a scientific assessment of ground reality and the principle of intergenerational equity has been unequivocally welcomed by both mining and steel industries. The Karnataka government, however, thinks the cap ideally should have been raised by 10 mt to 40 mt in consideration of the growing demand for iron ore as the local steel industry continues to add new capacity. What does not find favour with the state 

government is that the local mills should be either importing ore from Australia, Brazil and South Africa or haul the mineral from a distant centre in the country.

The state hopes to have a robust sustainability framework that should gradually let the ore production cap to be raised to 50 mt. In fact, it is claimed that once steel capacity expansion projects in the pipeline are completed, the state will need nearly 55 mt of ore a year. For any place endowed with rich iron ore reserve, mining is of strategic importance on grounds of revenue for the exchequer, creation of ore processing industries and employment. This will explain why Karnataka was ahead of the CEC in pitching for a higher production cap. It will, however, derive comfort from the ruling that a separate cap for C category mines, which have been  auctioned under a transparent system and a “different regime with firm commitments” by a court order, will be decided at an appropriate time. Miners wonder why they should not get back the right to export ore when steel mills are free to import the mineral and export steel products. 

The Supreme Court also appointed an expert committee for conducting a “macro environmental impact assessment study” on limits of annual ore extraction in Goa. Much to the relief of Goa miners, the committee has found the infrastructure as now available should lead to cap enhancement from 20 mt imposed in April 2014 to 30 mt. It says in its final report that annual production, based on “our sustainability model,” could be raised to 37 mt. 

A scientifically determined cap has to have a linkage with the mining zone’s carrying capacity, including the impact of ore extraction, its evacuation and dumping of overburden on environment and sustainability of operation. That’s why the expert committee’s emphasis on creating dedicated iron ore transportation corridors, introduction of mechanised handling of ore, strengthening of rail movement system and capacity enhancement of jetties. The court’s decision on Karnataka has given Goa mining groups the hope as well of getting maximum permissible annual ore production enhanced. 

Domestic steel-makers do not source iron ore from Goa because of its low iron content, so exports to China sustained the industry there before the mining ban and the production cap. But now, China in its mission to control pollution created by massive production of steel has started importing less and less inferior grades of ore. As China, which alone accounts for more than three-fourths of global seaborne trade in iron ore, remains focussed on material with high iron content, mines in Goa have been left high and dry. 

In the post-monsoon months of October and November 2017, ore exports from Goa were down sharply to 680,000 tonnes from 2.84 mt in the corresponding two months of the previous year. Chief Minister Manohar Parrikar says mines in his state will get some relief if the threshold of export duty exemption, now at ore with 58 per cent iron content, is raised to ore with 60 per cent iron content.  In the meantime, a committee with representatives from the central ministries concerned is making an assessment of “whether a reduction in export duty on iron ore is required... and if required its impact on production, consumption...  as well as its domino effect.” The Federation of Indian Mineral Industries director general RK Sharma says “Indian iron ore will become competitive in the world market if export duty is done away with.”