M B Shah Commission report: Odisha's mine of scams exposed

The report of Justice M B Shah Commission of Enquiry on illegal iron and manganese ore mining in Odisha, which the Centre had kept under wraps, is finally out. On Monday, the Union Ministry of Mines submitted the report to the Supreme Court of India which is hearing a public interest petition seeking extension of the commission's tenure so that it can probe illegal mining in other states. The two-volume report details the extent of rampant illegal mining across the state. It has estimated that the scam in mining iron ore and manganese in just two districts—Keonjhar and Sundargarh—is worth more than Rs 59,000 crore.

The ministry has been sitting on the report since October this year. On January 25, the Union government submitted before the apex court that no further extension could be granted to the commission and refused to make the Odisha report public, saying it has to be tabled in Parliament first.

Amicus curiae for the case, Harish Salve, however, argued before court that the findings of the commission are important. Subsequently, the ministry submitted the first two volumes of the commission's report on Odisha.

Some damning findings from the report

• Scam estimated at over Rs 59,000 crore: A total of 146 cases of excess mining were registered by Odisha's mining department for violation of environment clearance, mining plan and consent to operate norms as well as air and water Acts. Notices have been issued to various lease holders for recovery of mineral value under provisions of Mines and Minerals (Development and Regulation) or MMDR Act of 1957. Show cause notices were issued for the decade 2000-01 to 2009-10 for unlawful extraction of iron and manganese ores worth Rs 59,203.33 crore (see table for circle-wise break-up).

• 54 ha forest patch yields Rs 2,000 crore worth iron ore: The commission began by investigating illegal mining in Uliburu reserve and revenue forests in Joda mining circle of Sundargarh district. The commission found that from 54 hectares (ha) of pristine forests, mining companies extracted ore worth Rs 2,000 crore between 2003 and 2010 without any clearance or approval. The commission terms this as one of the biggest cases of illegal mining it came across and recommended a CBI investigation. On scrutiny, the Shah Commission found that the state forest department hushed up the matter by filing simple cases of encroachment in the Joint Forest Management Committee’s tribunal in Barbil town.
• River pollution: The report observes about 55 mining leases directly pollute the Baitrani or Vaitarni river having its major catchment area in two districts, Keonjhar and Sundargarh, and is lifeline of the area. Vaitarni is one of six big rivers in Odisha.
• Mining work sub-contracted illegally: Since mining operations are completely mechanised, therefore, no jobs were created, the report states. Mining operations are carried out through contractors, which is a violation of Rule 37 of Mineral Conservation and Development Rules (MCDR) of 1988. The commission has found that almost all persons to whom mining leases were granted (or are in possession of leases on the basis of deemed extension) are not carrying out mining operations themselves. The mining operations are being carried out by third persons—power-of-attorney-holders or contractors. For mining iron ore, the maximum expenditure by the lessees is not more than 45 per cent of the net value of the production. This finding is based on the fact that contractors are getting 36 per cent to 42 per cent share in the minerals extracted.
• Railways cheated of freight fare: The mining companies took advantage of Indian Railways’ differential freight scheme (charges for ore to be used domestically is less) to transport iron ore illegally out of the state for export or trade, says the report. Indian Railways incurred big losses on account of evasion of taxes and other surcharges. The policy of differential freight rates allows railway authorities to increase earning from export-bound freight. The illegal practices adopted by mining companies presented a perverse incentive to unscrupulous transporters who could corner huge amount of concession by masquerading their consignment as “domestic traffic” and then exporting/trading the same after unloading, says the report. In 2011, South Eastern Railway detected more such cases of freight charge evasion and issued demand notices to 14 companies for Rs 1,874 crore.
• Super-normal profits at state exchequer's cost: Odisha had suggested 25 per cent royalty on value of the ore. The delay in revision of royalty and the corresponding low rates at which it was fixed have led to continued excess profits being made by private mining companies at the expense of the state government, notes the report. Average profit on per tonne of iron ore increased from Rs 139.78 per tonne in 2001-2002 to Rs 3,237.64 per tonne in 2010-11 and companies started earning super normal profits. Further, the next revision was due in August 2012, but no such revision has been notified by the Central government. Odisha government also proposed a mineral resources rent tax, which was dismissed by the Centre. The Odisha government told the Shah Commission that with this tax it could have undertaken major development work in these regions. The annual production of iron ore in 2009-10 was 8.08 million tonnes. Taking into consideration the average price of export and domestic consumption at Rs 4,336.75 per tonne (62 to 65 per cent Fe grade), the total sale price comes to approximately Rs 35,082.57 crore. If the value of the public natural resource (iron ore in this case) for only one year is given to the tribal families of the two districts, each family will earn over Rs 9 lakh, says the Shah Commission report (see table).

• Excess of mine leases: In Odisha, the mining impact zones in Sundargarh, Keonjhar and Mayurbhanj districts is about 100 sq km (100,000 ha). As many as 192 mining leases of iron and manganese ores are located in these districts and they include forest areas. The total mining leases extend over 45,187 ha, out of which, mining operations are carried out in 33,987 ha of forest area. This covers approximately 45 per cent of the total mining zone which is considered as a very high density leased area.
• Toll on forests, wildlife habitat: The Commission states that 77 per cent of the mining of iron ore and manganese is happening in forest areas. Out of the 192 mines, 176 are in dense forest areas. In the case of 98 mining leases, the Union Ministry of Environment and Forests (MoEF) has not granted permission for diversion of forest areas. The number of mines that have forest clearance is 47. Out of 176 mining leases which are within the forest areas, 10 leases are in Mayurbhanj district and are within 10 km from outer boundary of the Simlipal national park. Of these, 31 mines are adjacent to projected elephant corridor in Sundargarh and Keonjhar district.
• Environment clearances not obtained or conditions violated: Out of 192 mining leases in Odisha, 94 mining leases don't have environment clearance (EC) at all. These include 23 leases where conditions are specified for giving forest clearance (FC) in order to obtain EC, but the conditions have not been met. The remaining 96 of 192 mining leases (excluding two leases of which the area is less than 5 ha for which no ECs were required) have EC. But as many as 75 mine operators have been extracting excess ore since 1994. In the case of 16 mining leases, ECs were granted without forest clearance in spite of the lease areas being located in forests. In 74 mining leases, EC was granted on condition of conservation and protection of wildlife. In 56 mining leases, ECs have been granted without stipulating any condition for protecting wildlife.
• Administrative failures: In 14 cases relating to over-extraction of ore, empowered officers have not taken action, despite direction of MoEF, and in two cases action was taken after a long lapse of time, says the report. In 14 cases, the district collector concerned did not take any action and in seven cases action was taken three to seven years later. Sixty mining leases for iron ore and/or manganese are operating under deemed extension and extraction is happening in violation environment impact assessment (EIA) notifications of 1994 and 2006, says the report. On perusal of approved environment clearances given by MoEF, the commission observes that the information inputs of rivulets, watercourses and rivers in and around mines are either incomplete or suppressed or false.
• Fast depletion of reserves: The report has noted misuse of Rules 10 and 12 of MCDR which relate to modification and review of mining plan by Indian Bureau of Mines (IBM). Out of 85 iron ore mining leases, IBM has modified the plans of 30 mines twice or more which allowed mine operators to increase output significantly. In 53 of these 85 mining leases, IBM has approved modification of mining plan with retrospective effect, thus regularising over-extraction of ore. In 49 mining leases, plans were modified to increase production. From 2000 till date, permission was given to increase production from 41.654 million tonnes to 118.978 million tonnes. If one considers the permission granted so far for extraction of 154.263 million tonnes by IBM and MoEF, then the state reserves of good quality ore would last only 30 years, says the report.

Report of Justice M B Shah Commission of enquiry for illegal mining of iron ore and manganese in the state of Odisha

Memorandum of Action Taken on the Justice M B Shah Commission Of Inquiry on illegal mining in the state of Odisha