Steel players seek fair deal on Hoda committee outcome

Amid reports that the Hoda Committee is likely to make recommendations against the grant or renewal of leases on captive mines to steel manufacturers, the Indian Steel Alliance has written to the Planning Commission that both the mining industry as well as the steel industry should be given a fair deal.

The committee, led by Planning Commission member Anwarul Hoda, is expected to present a report to the prime minister's office next week. It seeks to give a new direction to the country's mining sector by designing a new mining and mineral policy.

It had also to review the National Mineral Policy and recommend possible amendments to the Mines and Minerals (Development and Regulation) Act, 1957.

In the letter addressed to the Planning Commission Deputy Chairman Montek Singh Ahluwalia, ISA President Moosa Raza argues that the mining industry has been averse to the grant of captive mines to the domestic steel industry on "specious grounds".

"While on the one hand, the National Steel Policy declares a modest goal of 110 million tonne of steel production (by 2020) and encouragement to both domestic entrepreneurs and FDI (foreign direct investment) to set up additional capacity, the Hoda Committee would discourage any additional steel capacities on the ground that all steel requirement could be imported," the letter dated June 21, 2006, states.

It argues that Posco, Mittal Steel, Steel Authority of India Ltd (SAIL), Jindal, Essar and the Tatas, among others, would not invest billions of dollars without the assurance of a firm supply of iron ore through captive allotment.

Posco recently said that unless it was assured of captive iron ore, it would call off its $12-billion investment plans in Orissa.

Mittal Steel Jharkhand Ltd, which plans to invest $9 billion, has expressed similar sentiments.

While the SAIL spokesperson did not want to comment on "speculative reports", sources said even if the committee's recommendations were implemented by the government, it was unlikely that there would be an immediate effect on the public sector unit's operations as its medium-term ore needs had been already tied up.

In his letter Raza also said, "We are aware that the mining industry has been strongly averse to the grant of captive mines to the domestic steel industry on several grounds. It has been claiming that the grant of captive mines involves an inter-sectoral subsidy and that the steel industry does not pass on this subsidy to the customer."

"The speciousness of this illogical argument is self-evident and totally overlooks the fact of the immense value addition in the steel industry," he argued.

The mining industry paid the government a meagre royalty ranging from Rs 7 to Rs 25 per tonne depending on the grade. "Against this, when the very same ore is converted into steel, the domestic steel industry provides Rs 4,000 per tonne of steel produced in terms of excise and value added tax (VAT), a value addition of 10-15 times, permanent employment of more than five-to-seven times and foreign exchange earning of 12-15 times, as compared to the stand-alone mines," the letter said.

Even without conceding that captive mining entails the benefit of extraction cost, it is difficult to swallow the argument that this benefit should go to enrich the miners rather the steel industry, which are the backbone and sinews of India's infrastructure, Raza said.

He added that the self-serving argument of the mining industry negated the tremendous multiplier effect that the iron and steel sector provided in terms of forward and backward linkages, employment potential and contributions to the exchequer.

"It is also rather facile to argue that it is the nation's iron ore that is rendering the country's steel industry viable. If this argument is taken to its logical conclusion, then all plants of SAIL and Tata Steel will have to be closed down in the long run, if not in the immediate future," the ISA chief observed in the letter.

In order to meet the aspirations of steel and mining industries, Raza suggested that to promote the growth of the mining industry, new ore-bearing areas, hitherto not reconnaissanced or explored by GSI or MECL, could be thrown open for private sector investment along with appropriate incentives.

Among other measures, it suggested framing of appropriate policies for removing constraints of mining ore-bearing areas in the Western Ghats, allocation of iron ore amounting to 6-7 billion tonnes for the domestic steel industry, distribution of unallocated resources through auction to actual users and establishing steel mills within a prescribed time-frame.

Other suggestions were that the state governments could exempt established steel mills from the auction process on a case-to-case basis and allocation of mines could be on the basis of their long-term requirements.

Export of hematite iron ore from the resources should be discouraged as these were limited and the future of the steel industry was dependent on them. Besides, restrictions on the export of quality iron ore should be retained, Raza pointed out in his letter.