India’s Iron Ore Fate In Hands of (What Else?) The Government

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India’s iron ore producers continue to live in some challenging times.

While some of them in the ore-rich states like Karnataka have decided to let down their shutters despite a favorable order from the Supreme Court, due to a revenue crunch, the proverbial sword of Damocles hangs over their counterparts in the eastern state of Odisha.

Here, the local government had previously issued notices to mining companies for overproduction, in violation of their respective mining plans and sections under different mining-related acts, based on an inquiry by a judicial commission, the M.B. Shah commission.

What had made headlines was a demand notice by the Odisha government asking this group to pay a fine of about US $9.6 billion. The state’s ore sector includes most big entities in the steel sector, including a Government of India enterprise, the Steel Authority of India and a private steel major, Tata Steel.

The Odisha government’s view was that all these companies had mined in excess of the quantity permitted between 2001-2010 and, hence, had to cough up the price of the excess ore mined.

Obviously, the miners are not going to pay up without putting up a fight. According to this report in the Business Standard, the steel groups with captive mines and merchant miners in Odisha are challenging the government’s demand on a technical and legal point, saying the latter had applied the wrong section of the law for raising such a demand. All the companies have challenged it before the mining tribunal under the Union mines ministry.

Also, the Group has pointed out that the state government had already completed the “assessment proceedings” of their monthly returns of production and dispatches of ore, so how could it now turn around and allege that the companies had “over-mined,” so to speak?

A drawn-out legal battle is on the cards between these two entities. But its impact on India’s iron ore production cycle remains to be seen. As it is, with uncertainty enveloping the sector in Odisha, the state’s ore production is on a steady decline, from 81 million tons in 2009-10 to 34.5 million tons in the first half of 2013-14.

The only silver lining was this report in The Financial Express, which quoted unnamed government sources as saying that even though the Odisha government was firm on recovering the fines, it had no plans of canceling the mining leases of these firms. If the two issues – further mining of the ore and the fines – are not linked, it may not impact further production of the ore in the coming days in this state, say analysts.

Even the Indian government had gone on record to state that rather than impose fines or cancel leases, a more prudent approach would be to take up one case at a time, check the alleged violation, see what section of the mining law had been applied, and accordingly take action.

All now await official word on this from Odisha’s government, and if it matches what’s been quoted in The Financial Express report, iron ore mining in that state at least may be back in full force.

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