 "Turbulent times for Indian iron ore sector")
The Indian iron ore sector's cup of woes is brimming over. Category A and B ore mines in Karnataka are reopening slowly, owing to unconscionable delays in securing regulatory clearances following the Supreme Court withdrawing a mining ban imposed in August 2011. But the long production ban has bled the small mines so badly that many owners have decided to call it quits. All mines in Goa have remained in limbo since September 2012, following the findings of the M B Shah commission on mining in the state.
The ore found in Goa is of a kind that requires benefication and pelletisation before it can be used for making steel. This explains why the ore mined in Goa before the ban was mostly exported to China. India has lost $6 billion in exports on account of the mining impasse in Goa.
Now, the sword of Damocles is hanging over the head of ore producers in Odisha. The state government has issued notices to mining lessees for overproduction, in violation of their respective mining plans and different mining-related Acts, based on an inquiry by the Shah commission. The Acts supposed to have been transgressed by the lessees relate to section 21(5) of the Mines and Mineral Development and Regulation Act (MMDR). The Odisha government has asked the sector to pay a fine of Rs 60,000 crore. The state's ore sector includes most big entities in the steel sector, including a public sector behemoth and a local government mining undertaking.
The key issue is whether these groups in Odisha have actually done things to invite the penal provisions of section 21(5). The section says, "Whenever any person raises, without any lawful authority, any mineral from any land, the state government may recover from such person the mineral so raised or, where such mineral has already been disposed, the price thereof, and may also recover from such person, rent, royalty or tax, as the case may be, for the period during which the land was occupied by such person without any lawful authority." A state government is well within its right to invoke section 21(5) if any group is found to be illegally engaged in raising ore outside its leasehold area. But any mineral mined from leasehold land without infiltrating into forest pockets or areas adjacent to the leasehold section, even in excess of the mine plan, is not unlawful. The Indian Bureau of Mines has been allowing deviation of up to 20 per cent of "tentative annual production" indicated in the approved mining plan. For any such excess production, the groups concerned have to disclose the information in their returns to the state government and pay royalties and taxes.
Steel groups with captive mines and merchant miners in Odisha wonder how could the state government issues notices to lessees, as it has already completed the 'assessment proceedings' of their monthly returns of production and despatches of ore. Therefore, they see no justification for the state to invoke section 21(5) to recover money for the assessed mineral amount. At the same time, if there were violations of some other mines-related Acts that had gone undetected, the miners should be booked under the relevant Acts. Isn't it the case that violation under one Act cannot be penalised under another?
So, expect a protracted court battle between the lessees and the Odisha government on the Rs 60,000 crore sought to be recovered. Whatever the outcome, mining of any mineral must be done under the eyes of state agencies to ensure it doesn't harm the environment, particularly rivers and tributaries. With uncertainty enveloping the sector in Odisha, the state's ore production is on a steady decline, from 81 million tonnes (mt) in 2009-10 to 34.5 mt in the first half of 2013-14. Others, too, are reporting declines.
Besides the court-ordered restrictions on mining, the combination of 30 per cent export duty and highly taxing railway freight rates are responsible for a steep decline in production, from 219 mt in 2010-11 to 68.2 mt in the first half of this financial year. The country is foregoing huge foreign-exchange earnings by restraining ore exports in every possible way. The production shrinkage has created a situation in which our steelmakers are required to import. Imports, mostly by way of high-value pellets, are likely to increase to five mt in 2013-14 from three mt a year ago.
The closure of mines in Karnataka and Goa, and the low capacities of mines running in Odisha have hit operating companies and a large number of workers. The unprecedented disruptions in mining have also caused major collateral damage, from trucks engaged in ferrying ore to ports handling this dry cargo to manufacturers of mines machinery. Steelmakers are concerned supply has become uncertain when they are investing billions in creating capacity.
The ore found in Goa is of a kind that requires benefication and pelletisation before it can be used for making steel. This explains why the ore mined in Goa before the ban was mostly exported to China. India has lost $6 billion in exports on account of the mining impasse in Goa.
Now, the sword of Damocles is hanging over the head of ore producers in Odisha. The state government has issued notices to mining lessees for overproduction, in violation of their respective mining plans and different mining-related Acts, based on an inquiry by the Shah commission. The Acts supposed to have been transgressed by the lessees relate to section 21(5) of the Mines and Mineral Development and Regulation Act (MMDR). The Odisha government has asked the sector to pay a fine of Rs 60,000 crore. The state's ore sector includes most big entities in the steel sector, including a public sector behemoth and a local government mining undertaking.
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The key issue is whether these groups in Odisha have actually done things to invite the penal provisions of section 21(5). The section says, "Whenever any person raises, without any lawful authority, any mineral from any land, the state government may recover from such person the mineral so raised or, where such mineral has already been disposed, the price thereof, and may also recover from such person, rent, royalty or tax, as the case may be, for the period during which the land was occupied by such person without any lawful authority." A state government is well within its right to invoke section 21(5) if any group is found to be illegally engaged in raising ore outside its leasehold area. But any mineral mined from leasehold land without infiltrating into forest pockets or areas adjacent to the leasehold section, even in excess of the mine plan, is not unlawful. The Indian Bureau of Mines has been allowing deviation of up to 20 per cent of "tentative annual production" indicated in the approved mining plan. For any such excess production, the groups concerned have to disclose the information in their returns to the state government and pay royalties and taxes.
Steel groups with captive mines and merchant miners in Odisha wonder how could the state government issues notices to lessees, as it has already completed the 'assessment proceedings' of their monthly returns of production and despatches of ore. Therefore, they see no justification for the state to invoke section 21(5) to recover money for the assessed mineral amount. At the same time, if there were violations of some other mines-related Acts that had gone undetected, the miners should be booked under the relevant Acts. Isn't it the case that violation under one Act cannot be penalised under another?
So, expect a protracted court battle between the lessees and the Odisha government on the Rs 60,000 crore sought to be recovered. Whatever the outcome, mining of any mineral must be done under the eyes of state agencies to ensure it doesn't harm the environment, particularly rivers and tributaries. With uncertainty enveloping the sector in Odisha, the state's ore production is on a steady decline, from 81 million tonnes (mt) in 2009-10 to 34.5 mt in the first half of 2013-14. Others, too, are reporting declines.
Besides the court-ordered restrictions on mining, the combination of 30 per cent export duty and highly taxing railway freight rates are responsible for a steep decline in production, from 219 mt in 2010-11 to 68.2 mt in the first half of this financial year. The country is foregoing huge foreign-exchange earnings by restraining ore exports in every possible way. The production shrinkage has created a situation in which our steelmakers are required to import. Imports, mostly by way of high-value pellets, are likely to increase to five mt in 2013-14 from three mt a year ago.
The closure of mines in Karnataka and Goa, and the low capacities of mines running in Odisha have hit operating companies and a large number of workers. The unprecedented disruptions in mining have also caused major collateral damage, from trucks engaged in ferrying ore to ports handling this dry cargo to manufacturers of mines machinery. Steelmakers are concerned supply has become uncertain when they are investing billions in creating capacity.