Steel lobby locks horns with mining firms in Karnataka

Three years after the mining scam that rocked the country, steel producers and mining companies accuse each other of forming cartels to control iron ore prices; unprecedented increase in base prices

By Anupam Chakravartty
Published: Wednesday 05 February 2014

Both the mining and steel lobby want closed iron ore mines to be opened to meet supply requirements (photo by K R Vinayan)

Steel manufacturing companies and mining companies in Karnataka are locked in a battle over pricing of iron ore. The two lobbies have accused each other of forming cartels to earn windfall profits from e-auctions. However, they are united on one demand: open the closed iron ore mines to meet supply requirements.

On February 3, four organisations from the state, representing steel and sponge iron manufacturers and blast furnace makers, supported by Bangalore Chamber of Industry and Commerce, brought out notices in national and regional dailies, levelling accusations against the mining industry. These organisations have also written to various Central government ministries. The notices alleged that taking advantage of the shortfall in supply of iron ore, mining companies in Karnataka have started demanding higher prices in e-auctions.

It was in April 2013 that the Supreme Court of India allowed private mining companies to participate in e-auctions. Only 20 out of 115 iron ore mines are operational and a mining cap of 30 million tonnes per annum is in force. These mines were shut down following the exposure of scandal involving large-scale illegal mining and export of iron ore from the state.

Steel production takes a hit

According to Karnataka Iron and Steel Manufacturers Association (KISMA), the expected production from these 20 operational mines in the current financial year is about 18 million tonnes, which is well below the cap imposed by the court. Associations such as KISMA claim that the requirement for the domestic steel manufacturing units in Karnataka is about 36 million tonnes a year, which at present cannot be met with the current production. The integrated steel plants in the state are now running at capacity utilisation of 60-70 per cent. Similarly, organisations such as Karnataka Sponge Iron Manufacturers Association (K-SIMA) say that 28 sponge iron plants out of 53 have been shut down because of shortfall in supply of iron ore.

These organisations claim that till April 2013, only National Mineral Development Corporation (NMDC) and Supreme Court-monitoring committee (SCMC) auctioned iron ore in the state. However, with the Supreme Court allowing the entry of private mining companies in the e-auction in April 2013, there is an unprecedented increase in the base prices by 122 per cent. KISMA cites the example of ore comprising 61 per cent iron where the base prices fixed by NMDC and SCMC increased from Rs 2,035 to Rs 2,190 per tonne between April 2013 and January 2014, while private mining firms during the same period hiked the price from Rs 2,250 to Rs 7,000.

KISMA and other organisations have blamed seven mining companies, led by Vedanta-owned Sesa Goa and Goa-based Chowghule Company, for the cartelisation and increase in ore price. “These seven companies have category B mine leases which is approved by the state government and they have been increasing the prices in an unfair manner, causing hardships to the steel and sponge iron manufacturing units,” says R K Goyal of KISMA. Goyal and others are now planning to file a petition in the Supreme Court against the cartel. (Category B mines are those where companies are mining outside the lease area, encroaching up to 10 per cent more than lease area. Mines that dump waste outside the lease area, encroaching up to 15 per cent more than leased space are also inclided in this category).

These steel manufacturers’ bodies support the opening of more mines even as their clearances are still pending. “We pray for relaxation of the limits of permissible mining production of already operating mines of category A and B,” says Goyal.

Mining industry says steel majors subverting prices

On the other hand, mining bodies such Federation of Indian Mineral Industries (FIMI) blame the steel companies for cartelisation. In a strongly-worded press release, FIMI said there are three or four steel companies who buy almost 75 per cent of iron ore from e-auction in Karnataka. “It is actually this dominance of just few buyers that has led them to abuse the system, leading to cartelisation. They decide which auction to buy, what ore to buy and at what price to buy,” FIMI states.

It gives the example of latest changes in the prices fixed NMDC. Iron ore fines sold through e-auction on November 7, 2013 was Rs 3,154 per tonne, which increased to Rs 4,110 per tonne on December 10, and suddenly decreased to Rs 3,227 a tonne on December 23. “Steel industry cartels, driven by steel majors, is engaged in forging alliances so that the market sentiments remain low and private mining companies can be targeted, it adds. FIMI says that the government revenues by way of royalty and other taxes are impacted negatively due to artificial reduction in the price in absence of large number of buyers and that this is subverting the very objective of e-auction.  Mining bodies have also been demanding increasing the cap on iron ore production from Karnataka imposed by Supreme Court while also demanding relaxation in freight rates and export duties on iron ore.


Supreme Court order dated 28/09/2012 regarding mining leases in Karnataka

Supreme Court order dated 03/09/2012 in the case of Samaj Parivartana Samudaya & ors. versus State of Karnataka & Ors

The Karnataka (Prevention of Illegal Mining, Transportation and Storage of Minerals) Rules, 2011

Lokayukta report on illegal mining in Karnataka

2008 Karnataka Lokayukta report on illegal mining

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