Mining lessees made huge profit: Govt

 The State government, which has strongly favoured establishment of a Special Purpose Vehicle (SPV) for rejuvenating areas devastated by illegal mining, has found that mining lessees have made windfall profits with little investment and with negligible concern for sustainability.

The government is in favour of retaining a higher portion of the revenue earned by the lessees so that it could finance infrastructure and environment projects in districts of
Bellary, Chitradruga and Tumkur.  In its interlocutory application before the Supreme Court this month, Karnataka has presented how mining lease holders have made supernormal profits without investing much funds. The next hearing of the case is scheduled on January 8.

It has stated that in the last one year about 32 million metric tonne of iron ore has been sold through e-auction, generating Rs 7,600 crore.

Even if 15 per cent of the sale revenue is withheld by the committee, the remaining amount of about Rs 6,500 crore when distributed among 42 lessees will generate hundreds of crores profits to a lessee.

While the costs involved in mining the ore, including overheads, is about Rs 200 per MT, the lessees sells it at an average price of Rs 2,000 per MT at the mine pit itself.
The government, to emphasis its argument, has illustrated the supernormal profits earned by a lessee.

Waste dump of Mineral Enterprise Ltd (MEL) sold by monitoring committee through e-auction would not get less than Rs 400 crore and the remaining amount would be retained by the committee towards the proposed SPV.

Even the royalty on ore, forest development tax (FDT) and value added tax (VAT) in the auctioning are collected from buyers of the ore and not from lessees. In other words, the entire process, right from sanctioning of lease till e-auction has also facilitated lessees to earn huge profits at the cost of natural resources of the country which belongs to the State and its people.

In case of ‘A’ and ‘B’ category mines, 50 per cent of sale proceeds may go to respective lessees and of the remaining 50 per cent, 15 per cent may go to SPV and the rest to State’s exchequer. In case of ‘C’ category mines, the cancelled mining leases may be transferred to MML, and 50 per cent of the proceeds from sale of iron ore from ‘C’ category mining leases transferred to MML and the rest to SPV.

Iron ore demand

The government has told the apex court that supply of iron ore at reasonable prices is essential for attracting investments in steel industries as steel is necessary for the country’s economic growth.

One million tonne of iron ore results in royalty of Rs 20 crore (assuming iron ore price is at Rs 2,000 per MT), whereas the production of one million tonne of steel generates revenue to the extent of Rs 430 crore (assuming steel prices are at Rs 30,000 per tonne) to the exchequers of State and Central governments. While VAT is levied at 12.5 per cent, excise duty is 10 per cent.

To bring in more transparency in the system, benchmark prices of iron ore have to be fixed. Instead of lessees fixing the benchmark prices as suggested by the Central Empowered Committee (CEC) of the Supreme Court, the prices will need to be fixed by a committee appointed by the State government, the government has told the court.

 The CEC has recommended that not more than 30 million metric tonne of iron ore from three mining districts should be extracted. While the category ‘A’ and ‘B’ mines have permission to mine 16 to 17 million metric tonne, and NMDC has been permitted to mine 12 million metric tonne taking the total capacity to 30 million metric tonne.

Therefore, there will be no scope for granting any new mining leases in the future. The ceiling should be relaxed keeping the demand for steel in view.

The approved limit of 30 million metric tonne of annual production is not sufficient for even the existing steel manufacturing plants in the State.