Revenue implication of Rs 4,162 cr as Odisha's iron-ore grade declined: CAG

The Comptroller and Auditor General of India (CAG) which conducted an audit of six iron-ore mines in Odisha has observed that after the auction of the selected mines, there was an "abrupt and abnormal decline in the grade of iron-ore and its classification", as reported by new lessees.

"The decline of grade of iron ore has resulted in a revenue implication of approximately Rs 4,162.77 crore for the financial years 2020-21 and 2021-22 in the form of lesser royalty and premium (post auction)", the CAG said in its report No 6 of the year 2024, which was laid before the Odisha Assembly on Wednesday.

Though more than 83 per cent production was reported in the grade of 62-65 per cent Fe (iron) in the pre-auction period, the same came down to approximately 16 per cent in the two years after auction (2020-2022), it said.

Similarly, the auditor said, the share of grades 60 per cent Fe and below went up from approximately 11 per cent of total production to more than 60 per cent of total production in the two years after auction (2020-2022).

"A similar trend was also noticed in the case of production of fines. In the case of one iron-ore mine under the Joda Circle, the average production of lumps of grades above 60 per cent Fe was about 77 per cent before auction, which drastically reduced to 9.88 per cent within one year, in the financial year 2020-21," it said.

It further reduced to zero per cent during the financial year 2021-22 after a new lessee started operating the mine, it said.

"It is evident that after the auction of leases under the Mines and Minerals Development and Regulation (Amendment) Act, 2015, there was an inexplicable and steep decline, in the reported production of higher grade of iron-ore from the same mines, within a short period of one or two years," the CAG report said.

The audit report said that it is "highly improbable" that the grades of mineral reserves, produced from the auctioned mines, would witness an abrupt decline within a short period of one or two years, especially, when there was a consistent pattern in the grade of iron-ore production in the last six years' time under the old lessees.

"Such a significant and sharp decline in the grade of iron-ore indicated a significant risk that the new lessees were misreporting the grade of iron-ore produced, in order to avoid higher royalty that would have been payable on higher grades," the report said.

Despite such an abnormal decline in the grades of iron-ore lumps and fines, indicating the risk of misreporting, the CAG report said, adding the state government had "not taken any steps to investigate" the grades of iron-ore production reported by the new lessees as of March 2022.

As per the report, the state government has formed a committee led by the director of mines and geology to study the discrepancy in downgrading and misreporting of size of ore and the committee observed downgrading of ore in three leases and discrepancy in size of ore in six leases.

On account of the violation, the government has demanded an amount of Rs 471.48 crore from the lessees, who have preferred revision of the cases before the revision authority.

"Therefore, the present status clearly indicates the existence of system failure to timely detect the actual grades of lumps and fines produced, which adversely impacted the state government revenue," the CAG said in its audit report.