Bid for minerals

While the opposition voiced against various steel projects in eastern India, on the ground that the investors are simply interested in exploiting natural resources, is purely tactical and aimed at slowing down plans of rivals, there is a larger issue involved.

As in the case of radio frequency or spectrum for telecom firms, the subject of an equally intense battle, the country's mineral resources are finite and so a price needs to be paid for them.

This price is the cost the company will pay for long-term mining leases and then the cesses that state governments usually charge on mined products.

The problem, however, is that no one knows if the resource has been valued correctly, since there has been no competitive bidding, though it might be argued that this has not prevented mining leases from being given in the past-some of them to precisely the people who are objecting today (the protesting Tata Steel, for instance, benefits from owning some of the best iron ore mines in the country and there was no bidding for that).

But something can be learned from the case of petroleum, which is fully under the control of the central government and where all new oil and gas fields are bid for, with the same data on the fields available to all.

It is time for a similar arrangement to be worked out for other minerals as well since the number of deals that will be signed for exploitation of mineral wealth is going to increase.

Even if the current commodity cycle is on a slight downturn, continued growth in China and India will ensure that commodity markets remain strong.

In India alone, as compared to the current 40 million tonnes or so of steel production, domestic demand is expected to be 110 million tonnes by 2015, and the export market may account for another 20-30 million tonnes.

Domestic demand for aluminium, similarly, is expected to rise from 1.2 million tonnes now to 5 million tonnes by 2015, in addition to a similar amount for exports. Similar growth numbers are likely for other minerals.

What complicates matters is that such minerals are controlled by the states in which they are found (hence the new enthusiasm about eastern states, which account for more than half the country's iron ore and bauxite reserves); the role of the Centre is limited to environmental clearances and such.

While the rights of exploitation can only be that of the states to give, some rules have to be laid down for preventing sweetheart deals.

In an ideal situation, mining rights need to be bid for. If this is done and the state gets a fair price for the mineral, it will not matter as to whether Posco, to use the current example, exports iron ore from Orissa or whether it uses it to produce steel that it will export.