Governance failure

How agencies meant to regulate mining conspired in the loot

By Chandra Bhushan
Last Updated: Sunday 28 June 2015

Governance failure


Mining in India is regulated by multiple institutions functioning at multiple levels to provide checks and balances. In Bellary, however, every department and agency supposed to regulate and control mining simply collapsed under the weight of the “loot”. Bellary, therefore, represents a colossal failure of governance.

There are seven ministries and departments directly responsible for regulating mining and its environmental and social aspects. Here is a look at how they failed.

Union Ministry of Mines: It is responsible for legislation and regulation of mines and development of minerals. It administers the Mines and Minerals (Development and Regulation) (MMDR) Act of 1957, the foremost mining law of the country. Prior approval of this ministry is required before a state government can grant mining concessions for large mines. The ministry not only completely failed to see what was happening in Bellary it also failed to raise royalty on iron ore. When the price of iron ore rose above Rs 3,500 per tonne, the royalty that it fixed was a mere Rs 16-Rs 27 a tonne, resulting in a massive loss to the public exchequer.

Indian Bureau of Mines: The premier mining regulatory body not only approves mining and environmental management plans, but also enforces these plans under the Mineral Conservation & Development Rules of 1988 and certain provisions of the Environment (Protection) Act of 1986. It is supposed to inspect mines regularly, prosecute violators and has powers to suspend mining activities. The bureau’s primary role is “conservation of minerals and protection of environment”. In Bellary, it failed on both counts. It allowed iron ore production to expand four-fold in 10 years and approved new mine leases in forest areas despite massive ecological degradation and wanton exploitation of minerals.

The Lokayukta report says the bureau used flawed methodology to arrive at the value of minerals on which royalties are charged by state governments. India lost huge royalties from iron ore because the bureau undervalued minerals.

State department of mines: It undertakes mineral exploration, sanctions prospecting and mine leases and collects royalties. It is supposed to inspect mines and ensure mining plans are followed. It checks illegal mining and transport of minerals and also issues transit permits for transport of minerals. The department failed to execute these responsibilities and has been indicted for facilitating illegal mining and transport of minerals from encroached forestland. It even allowed mining to continue beyond expired leases, resulting in lower collection of royalties. The department also allowed an illegal practice called “raising contract”, banned under the MMDR Act.

Directorate General of Mines Safety: The regulatory agency under the Union ministry of labour and employment ensures occupational safety, health and welfare of mine workers. It ignored use of child labour and exploitation of women and contract labourers in Bellary. Most mine workers in Bellary are contract workers who work and live in abysmal conditions.

Union Ministry of Environment and Forests (MoEF) and State Environment Impact Assessment Authority (SEIAA): In 2001, MoEF put a stop to issuing fresh mining leases or renewing existing leases in Bellary and asked the Karnataka government to conduct a detailed environmental impact assessment for the entire region. NEERI at Nagpur carried out the assessment and prepared an environmental management plan in 2004. It was never implemented. MoEF, nevertheless, withdrew the moratorium and started giving unrestricted clearances. In October 2010, the then environment minister Jairam Ramesh declared no diversion of forestland for mining in Bellary. But the ministry allowed such diversions as late as March 2011. Interestingly, MoEF did not declare Bellary as a critically polluted area when it released its list of polluted areas in the country in 2010.

In 2006, SEIAAs were set up to grant environmental clearance to mining projects in 50 hectare areas or less. This opened the floodgates. Since 2007, Karnataka SEIAA has cleared more than 25 iron ore mines in the state; 19 of them are in Bellary. SEIAAs are turning out to be institutions which are held least accountable for their actions.

Karnataka State Pollution Control Board: It has not prosecuted even one mining company despite violation of environmental laws and the visible environmental degradation. It failed to even monitor the level of environmental degradation in the region.

Forest department: Its failures are colossal. Over 90 per cent of the mining leases in Bellary are in forest areas. The forest department colluded with mining companies and allowed encroachment of large tracts of forestland. It issued transit permits to transport illegally mined ore though forests. In return, the department levied a forest development tax (see ‘Republic of Bellary’).

Besides these agencies, the district administration, too, colluded with mining companies; the railways and port authorities did not differentiate between transportation of legal and illegal ore and the customs department turned a blind eye to duty evasion. All departments had their snouts in the trough and there was no one to question them.

Lessons from Bellary

Bellary highlights the lack of accountability of our institutions and the failure of checks and balances that we have instituted. The systemic failure of institutions, therefore, should be viewed more seriously than all the illegalities and environmental degradation that occurred in Bellary. Bellary is not unique in that it is a model of all transgressions in most mining belts of the country—Singhbhum (West) and the coal belt of Jharkhand; Keonjhar, Ib valley and Sundergarh in Odisha; Kutch, Jamnagar and Junagarh in Gujarat; Raigarh in Chhattisgarh and Goa. The list is unending. We must learn from the failures of Bellary.

In our governance system, everyone has powers but no accountability. This must change. First and foremost, we need to fix accountability in government institutions. Regional officers of pollution control boards must be held responsible for overall environmental degradation. Members of the expert appraisal committee of MoEF and of SEIAAs who give environmental clearance must be held accountable. Forest department officers must be held responsible for illegal mining in forestland. Inspectors of the mines bureau who clear errant mines must be prosecuted. Transparency in allocation of mining concessions and restructuring mining institutions must be our next priority. The draft Mines and Minerals (Regulation and Development) Bill of 2011, which will replace MMDR Act, will help. But the mines ministry must review the bill learning from the Bellary mistakes. The draft bill, which is hanging fire under the pressure of the industry, must be passed quickly.

Bellary also showcases how environmental and forest clearance processes are not working. Individual factories and mines are cleared without considering their cumulative impact on the environment. Cumulative regional impact assessments must become a part our system of environmental clearance.

Double whammy

Bellary supposedly has one billion tonnes of iron ore reserve. But it will not last. The existing capacity of iron and steel plants in Bellary is 27 million tonnes. Further, land has been allotted to Mittal, Essar, Bhushan and Brahmani steel companies. South Korean steel giant POSCO is also setting up a plant near Almatti dam. In a few years, the total steel manufacturing capacity in Bellary will touch 50 million tonnes. This will require about 125 million tonnes of iron ore every year—about three times the current level of mining. It means the total iron ore reserves will not last even 10 years. To produce 50 million tonnes of steel, large quantities of water will be diverted from the Tungabhadra and Almatti dams. The combined effect of mining and steel production will be catastrophic for Bellary.

A cumulative environmental assessment must be undertaken immediately to arrive at a sustainable level of mining and steel production. In addition, the government must initiate an action plan to restore mined areas and regenerate forests and ecology. Till this is done, the mining moratorium must continue.

Republic of Bellary

Bellary had many unique attributes. It had a minister in-charge of the district— Janardhan Reddy—who lorded over the district administration. This is a unique system in Karnataka where ministers are assigned districts. The state also levied many taxes on Bellary’s iron ore, not found elsewhere in India:

  • Forest development tax @ 12 per cent of sales price
  • Iron ore development tax
  • Road tax @ Rs 500 per truck
Then there was dust-per-crop compensation of about Rs 3,000 per 0.4 ha that mining companies paid farmers for damage to fields. This was adjudicated by the state pollution control board. The profits were so huge and illegality so widespread that not even one company objected to these taxes.

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  • While Mr. Hegde has done a

    While Mr. Hegde has done a good job in documenting failures, he has erred in some of his conclusions or made comments more severe than the ground reality due to his examination of the matter from the point of view of an outsider who does not know the inner workings of the trade. Most of his points were well known to those remotely connected to the industry although his access to documents helped him verify and trace details of many transactions.

    Genuine iron ore miners (other than those deliberately violating laws due to their political clout) were subject to huge harassment from all government departments for inspections, permits, etc. even before the rise of Reddy bros. The Reddy bros coming was the height of corruption akin to large-scale daylight dacoity and the system so thoroughly corrupt that it was a choice between closing and surrendering the mines or succumbing to the system. Having put in years of strenous efforts at all levels of Govt from state to centre, that too for years, and maintaining their leases after enduring decades of low prices for iron ore, which mine owner can be really blamed for succumbing to the thoroughly corrupt political, regulatory and bureaucratic system to earn at least a part of their just dues from the recent mining boom? Where would they run for recourse when the entire system was rotten, a fact which they were already well aware of? Repeated protests against newly minted taxes and duties without base (whether legal or illegal) and even exhorbitant hikes of railway freight by the Govt had always failed to bear fruit. Where in the world does a Govt railway by means of a 'dynamic freight system' increase freight from Rs. 250 to Rs. 2000 just because the value of the commodity it is carrying has gone up, thus skimming off the cream of the ore value?

    All the illegal operations in mining happened only because of the total failure of the regulatory system which forced all miners, traders, operators to pay exhorbitant sums and operate illegally by clogging up the legal system to such an extent that no one could operate legally.

    Implementation of the system which actually should have worked, with the necessary monitoring and regulatory departments already existing, would have easily prevented the illegal mining carried out but the political and regulatory will was absent. Even now, it is very easy for the concerned authorities to put in place a system that works, provided those in charge are honest - which has to either come voluntarily from the officials or forced with fear of punishment.

    Another factor is the nest of permits, approvals, clearances, etc. from multiple departments of the central and state govt. and necessity of fulfilment of multiple laws, rules, regulations, conditions, etc. File need to criss-cross hundreds of desks with indefinite time-frame. To negotiate such a labyrinth is inhumanly possible and the miner is bound to slip up somewhere which is immediately taken advantage of by concerned officials. This maze needs to be simplified and clearly defined, with the procedure and time-frame specified for each step.

    A few other points which need to be mentioned is that a large part of the so called 'forest cover' in Bellary was in fact existing only on paper and not on the ground. In India, the anomaly is that area marked as forest land need not actually have forest, it has just been marked as such. Bellary was always largely an arid region with minimal forest to speak of. The degraded forest mentioned was already degraded or never really forest for decades. It was only in Sandur that some forest cover existed.

    Mining by it's very nature needs to remove the surface area including the vegetation, dig pits and cut hills. It is balance between maintaining the existing topography and the economic benefits. Once the decision is taken to mine, it cannot be faulted by saying the earth or hills have been scared. Incidentally in Bellary-Hospet, the deposits are on the hills and mining has to be carried out where the mineral occurs.

    It is beyond the Lokayukta's scope or the court's scope to take a business decision on using the ore for domestic use or export - that should be the economic decision of the seller of the ore. Whether ore is mined for domestic or export use, the impact on the environment is the same. If the reserves will deplete in 30 years with domestic and export use, even if it is reserved for domestic use, the reserves will deplete in 60 years causing the same end-result. The steel lobby (also indicted by the Lokayukta report) has created a false hype by a sustained media campaign that iron ore is a critical resource and needs to be reserved for steel making which builds the nation. In fact, export of iron ore is earning the country sizable foreign exchange. In 5 years, there is projected to be a surplus in world production of iron ore (deposits of which are abundant worldwide and forms 7% or the earth's crust!). If steel is value adding as claimed, steel mills should have no objection in buying ore at export price as they would have sufficient margin of value addition. However, they are making profit only by buying cheap ore by lobbying the Govt. and selling steel at above international prices (as they have shelter of import duty on steel, freight cost and time and effort needed to import steel). Thus they are doing no service to the country as user industries have to pay high prices for steel which they could get cheaper by import if import duty was zero. World wide, steel mills procure their own iron ore and other raw materials at market rates or invest in mines by competing in the market. It is only in India that mills are able to demand raw material at subsidized rates for making steel sold at commercial prices, and the Govt is buying into their propaganda.

    While iron ore mining is blamed for all environmental ills, some factors such as the siltation of the Tungabhadra dam were existing before the increase in mining and no action has been taken by the Govt for years to desilt it. Agriculture though carried out in Bellary was not very large scale as the land was always arid, and not all of it has disappeared since mining started as is being sought to be made out. Thus, an unbiased view needs to be taken while studying the impact of mining, which no doubt has been very significant.

    Why was Bellary always one of the poorest and backward areas of the country with the people suffering, farmers not able to make ends meet and people migrating to other areas in search of employent, if maintaining the environment in the status it was 10-20 years ago is the only concern and being made out to be the panacea of all ills?

    Iron ore mining and export is a legitimate business which need not be curbed but only regulated fairly and on a level playing field with mining for domestic use.

    Thus stoppage of mining and reserving ore for domestic use are not the solutions to the problem, but are just an easy way out - amounting to throwing away the baby with the bathwater. The Lokayukta has failed in this aspect. Implementing a workable, fair and legal system of operation is what is required.

    A holistic view of balancing environment, sustainable development, industry, mining, unlocking the value of mineral reserves, etc. needs to be taken rather than focussing only on one aspect of destruction (or rather preservation or change in) the natural environment.

    Posted by: Anonymous | 9 years ago | Reply