Two states, unused iron ore, a growing human crisis

Everyone in India has an answer as to why two Indian states are losing opportunities from rising global prices of iron ore. But no one is offering any solutions to what was India’s biggest human crisis before Covid-19 turned the world upside down.

The two states are Goa and Karnataka. One known for its pristine beaches, the other for its booming IT business. Both also produce ore, sorry they used to once. Not anymore. And now, they have somewhat similar problems revolving around the ban imposed by the Supreme Court and other regulatory bodies on iron ore mining. In Karnataka, mining was banned in 2011, in Goa the ban came in 2018.

Since then, the demand for resumption of mining has been growing in the two states. In a recent meeting with state chief minister Pramod Sawant, Goa governor Satya Pal Malik suggested resumption of mining at the earliest and asked Sawant to fast track the proposal before the central government for resumption of mining leases by way of legislative cure in the form of amendment to the mining laws, so as to get extension for leases upto 2037.

As many as 88 mining leases have been quashed by the Supreme Court, mining closed since February, 2018. If mining resumes, Goa will earn a whopping Rs 3500 crore.

Frustrated at the state of affairs in the Goa mining sector, representatives of 40 village Panchayats recently petitioned the state government and the Centre to take action against those not in favour of mining. In their petition, they argued that Goa’s loss is someone’s gain. 

The biggest beneficiary of the Goa shutdown has been two Australian mining companies which have taken over the Goan orders and sending their low-grade iron ore to China. New Delhi’s loss is Beijing’s gain. 

The Supreme Court move followed after Retired Justice Shah Commission said that illegal mining was spread over 550 hectares in Goa and caused a whopping loss of Rs 35,000 crores. Now, after many court cases, the actual loss is yet to be computed and the disputed area is not 550 hectares but just 5 hectares.

What is interesting is the country’s apex court dismissed the Shah Commission findings and asked the state government to assess the losses. But there were an estimated 1,000 non governmental organisations (NGOs) which said they wanted a six member committee supervised by the country’s apex court. The committee was formed and it said the issue of alleged illegal mining should be handled by the state government. The NGOs threw a spanner, saying they do not want the report, and the ban must stay.

What is disturbing is that arguments no longer revolve around environmental damage but mining acts and tweaking of the same as demanded by the miners and opposed by the NGOs, led by Goa Foundation. Equally important is the way the NGOs have lost their cases repeatedly, only to file similar appeals in other courts. “Liabilities are increasing by the day, soon there could be a social unrest,” says Ambar Timblo, president, Goa Mineral Ore Exporters Association (GMOEA).

GMEOA wants urgent resumption of mining, judicious implementation of projects under funds collected and avoid the dump sale of iron ore which is actually impracticable because of market requirement of better quality ores. New Delhi (read the Centre) has not responded.

In Goa, an estimated 300,000 miners are without salaries ever since February 2018. In addition, another 100,000 involved in ancillary business have lost their jobs. Mining was the largest employment generator in Goa. Many argue mining has been banned not because of environmental or health concerns but because of the interpretation of the laws: Extension of leases has been disallowed without an alternative solution in mind.

Iron ore mine (Representative Photo)

Putti Gaonkar, a leader among the miners, says someone must find a way out of this mess. “We just do not know what to do,” says Gaonkar, president of the Goa Rajya Kamgar Mahasang, a state level federation of 21 trade unions.

The state government is also in a mess. It has to rely on Sovereign Bond sale to meet its salary commitments to its employees. Shutting down of mining operations has caused a 40% slide in individual incomes, claim recent studies.

Before the first ban in 2012, mining contributed 25% to the state economy while effectively occupying only around 5% area in the state. After the ban, the contribution is less than 1%. Since mining was 100% export oriented, forex losses are significant, currently standing at a whopping $10 billion. Supportive infrastructure has also suffered. As per current estimates, more than 12,000 trucks and 150 barges and ancillary units are at a standstill.

This is not all. There is a deathly silence on why Karnataka is losing a huge opportunity from rising global prices of iron ore?

Consider this. Global prices of iron ore have reached a seven month high due to strong demands from Chinese steel mills and top exporters like Brazil and Australia are unable to push supplies. But one of India’s largest iron ore producing states is badly stuck.

Karnataka, which once produced one third of India’s total production of 231 million tonnes, has lost the race to states like Odhisha which took the biggest chunk of India’s iron ore production at 130.04 million tonnes, more than half of India’s total iron ore production. Chhattisgarh produced 35.72 million tonnes while Karnataka was at 29.87 million tonnes.

Unlike other states, Karnataka’s problem is unique because it could not produce more because of a Supreme Court order, nor could it contribute to exports because of restrictions. As a result, the state remains totally cut off from the world markets.

The country’s apex court has imposed restrictions on the state government to export ore from three iron ore rich districts. What is surprising is that on one hand, steel manufacturers are allowed to import iron ore despite ample supply of domestic resources. As a result, the miners are forced to sell only to the domestic steel manufacturers as per their terms of trade.

This is just one part of the problem.

The other issue revolves around steel players who, at any point of time, may discontinue purchase from domestic miners and resort to import. The miners say this is traditionally done to build pressure on the miners to reduce price even at a time when prices of iron ore are soaring in global markets. 

Imagine the plight of the miners in Karnataka who are further compelled when PSUs like NMDC, the largest iron ore miner in India operating under the Ministry of Steel, reduce its prices by Rs 900 within a month’s time. It slashed prices by Rs 500 per tonne in April 2020. A similar price reduction was done in May 2020 as NMDC again reduced prices by Rs 400 a tonne. 

Now see the crisis.

Due to the steep reduction in prices by NMDC, other Karnataka miners were also forced to sell the iron ore at reduced prices because exports to the global market is no longer an option. This not only affects the average sale price captured in IBM index but also devalues the domestic ore. At the same time, steel plants continue to gain from artificially low prices of iron ore and rising prices of steel. Very few know the entire process of lowering prices also causes loss to the state exchequer which earns 30% in taxes and levies from the ore’s sale value.

The issue is not triggering breaking headlines because the nation (read government) is busy saving the economy which has been battered beyond repair because of the lockdown triggered by COVID-19. Prime Minister Narendra Modi has urged India to become Atmanirbhar which translates into self-reliant and imports. Even as industry experts work overtime to boost exports, Karnataka lies like a prostrate, disemboweled Gulliver. If the state was allowed to export iron ore, Karnataka would have been able to enhance its revenue.

Industry sources say Karnataka has a surplus of 12 million tonnes of iron ore. At the same time, steel mills imported a record 6.1 million tonne of ore during 2019. This is not a small amount, this is a little over 50% of India’s total iron ore exports of 11 million tonnes. And see the net result, the unused stock resulted in a Rs 500 crore loss of royalty and tax revenues to the state exchequer.

Flip the pages and see what could have actually happened if the Supreme Court and other regulatory bodies had allowed iron ore exports. Karnataka miners would have derived the right price for their material and domestic prices hovered around the export parity. The value of the domestic consumption of state would have increased and the surplus iron ore would have been exported, adding around Rs. 3000 Crore to the state exchequer. 

But it is not happening. Worse, the lower sale value also includes the lower premium earning on auctioned mines due to suppressed prices. The losses are putting pressure on the ecosystem and infrastructure the miners built. The big question now is: Will the surplus material be ever sold? Worse, would it not create more  bottlenecks for further production of mines?

So what exactly is happening in Karnataka? The state imposed export restriction, Supreme Court-imposed E-auctions and production level cap of iron ore in the state coupled with artificially suppressed prices has deprived miners from their right of free trade. In these e-auctions, in absence of any traders (as per rules), a state of monopoly has emerged where the only integrated steel plant has the advantage and to large extent artificially suppress the price. 

Isn’t it gross unfair? Let us remember that the Supreme Court ban in July 2010 was imposed in the state due the conditions prevalent during 2011-12. But now, the state government should now take charge of the sector and push it on par with other states where there is no such restriction and the trade is market driven, transparent and growth based.

In the mining industry, miners generally sign time bound contracts with end users or traders at bilaterally negotiated prices. Since the market is competitive, both from domestic sources and imports, hence there is no room for miners to overcharge the steel mills. There is another advantage, these contracts also provide certainty to both – the producers and end users. It also helps plan up the investment. But it has not happened, the Karnataka’s steel industry continues to reap windfall benefits because of the ban on sale of state’s iron ore outside Karnataka and the mining companies remain pushed to a corner. 

And this is happening when there has been serious disruption of Iron Ore exports, especially from some of the world’s top major suppliers. 

There is a strong demand for steel mills across the world (including China) and the demand for raw material has gone up, global iron ore prices touching seven months high. Futures for iron-ore with 62% iron content jumped 10% to nearly $107 per tonne (highest in China’s Dalian Commodity Exchange since October 2019). In the wake of weak domestic demand India too had exported a total of 23 MT of ore & pellets from Dec 19 to May 20. Major iron ore rich states like Odisha contributed to the rise in export of iron ore from India even at a time during April 2020 when there was a huge dip in export from other sectors owing to the lockdown.

A study by Care ratings noted that outbound iron ore shipments rose 17.5% during April 2020. Unlike other states in India, Karnataka could not contribute to the iron ore export as it is totally cut off from the world markets due to restrictions in exports of iron ore prevalent in the state.

Is someone listening in New Delhi? Probably not.

Shantanu Guha Ray
Shantanu Guha Ray
Shantanu Guha Ray is India Editor, Central European News (CEN), Vienna and the Consulting Editor, News Intervention. His much-acclaimed and award-winning book, Target, takes a close look at the NSEL crisis.

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