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New mining bill: ministries differ on benefits of captive allocation

The steel and mining ministries have differed over the benefits of captive allocation in their views for the new mining bill.

The Mines and Minerals (Development and Regulation) Bill, 2011, widely discussed for its profit-sharing clause, seeks to introduce competitive bidding on known mineral resources. Cleared by a group of ministers, it is currently being debated by the standing committee on coal and steel.

The steel ministry has told the parliamentary panel that end users should be prioritised in mineral allocations and reservations.

The mines ministry has, however, questioned the very merit of captive allocation. It is promoting the concept of assured ore linkages. The idea is gaining ground as regulators introspect the way forward for illegal-mining affected districts of Karnataka and Odisha.

The ministry of steel has sought protection for interests of value adders and end use industry, particularly in respect of minerals such as iron ore, which is a key steelmaking ingredient. It has also complained about captive mines not being assured to existing steel capacities, something it claims the Planning commission's Hoda Committee had recommended for capacities already up in 2006.

It has sought a one-time allocation of captive iron mines for adequate resources particularly for existing plants in non-iron ore states, such as its own Vizag-based RINL that has to buy ore from the market at a much higher price than the transfer price from captive means. "Not having captive iron ore and coal makes our steel expensive by 7000-8000 per tonne than steel from competition who have captive raw material. Against a raw material cost of 35% (for Tata Steel or SAIL) ours is as high as 75%," said AP Choudhary, CMD, RINL.

The ministry of mines though believes grant of captive mines is not an optimal solution and often leads to suboptimal utilization of the entire grade of iron ore, especially fines for which there is little domestic demand. It's also pointed out an increasing trend in states, considered owners of mineral resources, insisting on value addition (in granting mineral concession) irrespective of the economical viability of the downstream project. The bill, its pointed, out allows states the option of giving weightages to processing and mineral-based end users.

States such as Odisha, accounting for a third of India's iron ore, have also earned notoriety for delays in land acquisition. But for a few exceptions no greenfield project has taken off in Jharkhand. "These realities must be taken into consideration by the sates," says a senior official of one of the country's largest metal players that recently grappled with such issues.

Defending Odisha, whose coasts, water, coal and iron ore have attracted Posco and Tata Steel, a senior official said "if you want to eat potatoes you'll encounter no bones. But, if you desire Hilsa fish you must put up with the bones". The official was simply comparing the benefits of withstanding the process as no other state has the attributes that compare well against Odisha for setting up steel plants in their locality.

The ministry has been working on policies to encourage (beneficiation and pelletisation close to mines) and has thrown up idea of Ultra Mega Mining projects. "Ore linkage rather than captive mining should be the paradigm for ensuring raw material security," it has told the Committee in a letter earlier this month.

The Central Empowered Committee helping the Supreme Court in its investigation of Bellary has suggested a similar mechanism, and even auctioning of all iron ore produced. When steel industry was in infancy and States with no alternative but to grant leases earlier prioritized value addition in their own interest

But if the new bill allows for better realization of minerals through auction, the state would have to rethink on value addition. Otherwise CAG could always question the windfall gains allowed to new lease owners," said a concerned government official. The steel ministry has also wanted reservation areas for PSUS to be retained, pleading "largely public interest" and claiming PSUS are modeled on "sustainable and holistic development".

Government dispensation continues to be allowed for coal, under Coal Mines Nationalisation Act.

Such a provision, however the ministry of mines believes, would not provide a level playing field particular essential to the foreign direct investment. The Hoda Committee in fact had found the clauses being misused by States to stall private sector players, it has said.

PSU interests again have also been covered under techno-economic weightages credited to them in selection process.

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