Saturday, June 05, 2010

Maoists, Mining and the Great Indian Loot!

To understand how mining policy has actually helped the Maoists, let’s take the specific case of iron ore — crucial for Chhattisgarh and Orissa and not insignificant for Jharkhand, all states with a serious Maoist problem on their hands.

At the turn of the millennium in 2001-01, India exported iron ore worth a measly Rs 358 crore. By 2008-09, that figure was up to Rs 21,725 crore, a sixty-fold jump in just seven years.

Driving this export of ore were several factors. One was the decanalisation of exports of ore with an iron content of 64% or less in the late 1990s. The other was China’s seemingly insatiable appetite for iron ore in the run-up to the 2008 Beijing Olympics. As a result, the international price of ore — with 63% iron content — soared to $200 per tonne in March 2008, more than four times the price five years ago. 

Indian ore exporters thus had a ready and profitable market. The icing on the cake was provided by the royalty rates charged by the government. The rates fixed in October 2004 varied from as little as Rs 4 per tonne for low-grade ore to a maximum of Rs 27 per tonne for the highest grades. There was also no export duty. 

To see what this meant, check out what the Karnataka Lok Ayukta had to say on the allegations of illegal mining in the Bellary region of the state. Its report submitted in December 2008 pointed out that when the export price was hovering around Rs 6,000 to Rs 7,000 per tonne, the state government was getting between Rs 16 and Rs 27 by way of royalty. The extraction cost to the miner was, by the state’s own admission, of the order of Rs 150 per tonne. The Lok Ayukta noted that even if the transportation cost was estimated at Rs 250 per tonne, the total cost for the exporter would be not more than Rs 427 per tonne. 

Since the export price of the ore even in a slump was never lower than Rs 1,500 per tonne, that would leave a neat profit of Rs1,073 per tonne. Out of this, the state was getting at best Rs 27. 

So outraged was the Lok Ayukta by these calculations, that the report went on to advocate a complete ban not just on export of ore but also on its trading, saying it should be reserved only for captive mining by domestic steel producers. 

It took another two years before the ministry finally notified the new rates in August 2009. But there was a catch. The “sale price” which was to form the basis for the ad valorem rates would be determined by the Indian Bureau of Mines (IBM) on the basis of the average of sale prices reported by non-captive producers. 

To see why this made a mockery of the 10% rate, just look at the numbers for February 2010, the last month for which the IBM has put up the sale prices on its website. The all-India sale price average for lumps of 62-65% iron content was Rs 1,760 per tonne. The highest sale price for any state for this grade of ore was put at Rs 1,949 per tonne. 

Against this, the average international price prevailing in February for Indian ore of 63% iron content bound for Chinese ports was $128 per tonne, which is closer to Rs 6,000 per tonne. Even allowing for transportation costs, which can be significant, clearly there is a wide gap between the price at which the royalty rate is being applied and what the exporter is actually getting. 

Why do these details of iron ore extraction and sale matter? Because the enormous margins involved — in exports as well as domestic sales — mean that the scope for sleaze and the temptation for illegal mining are huge. 

And this is where the connection with Maoists lies. Not only has rapacious mining turned the tribal away from the state, it has reportedly provided a steady source of funding for the Maoists through extortion. In short, by promoting this variety of crony capitalism, the state has shot itself in the foot.

From Shankar Raghuraman's article in Times of India Read More

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