To mine or not to mine

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Our strength is iron ore, not making steel. We must export ore and earn revenue

Sunil Batra
Consultant, Commodities Trade

IT IS ridiculous to ban exports of iron ore just because there is rampant illegal mining activity. By this analogy, if there is an increase in accidents, the governments should ban vehicles, just as it should ban keeping of valuables at home because thefts have increased. The government has the power and administrative machinery to stop illegal mining and should focus on that, instead of banning iron ore exports to stop illegal mining. Can there be a more absurd logic ?

Illustrations: Anand Naorem

The problem is not the export or mining of the ore, but that of illegal mining and the greed of the mining mafia, which the government is unable to control. The deposits in Karnataka are over 10 million years old, unlike the deposits in eastern India, which are only five million years old. Because of this, the Karnataka ore is soft and found in the form of “fines” (powder) as against the lumpy ore of eastern sector. Most of our steel mills cannot directly use the fines; thus they had no commercial value until 2002-03, when China entered the market as a major buyer. Prior to 2002-03, in Karnataka, iron ore fines, with more than 63 percent Fe (iron) value, were available at less than Rs 200 per tonne. Yet it had few takers. Today, the same ore is priced between Rs 1,500 and Rs 2,500 per tonne, depending on international price. This sudden spurt in the price, coupled with an inefficient government, has engendered the mafia and illegal mining.

Once export of the ore is banned, its prices will drop to almost the pre-2002 levels, leaving little incentive for illegal mining. But would that be prudent? When an exceptionally remunerative price is available in the international market for a product that has little or no use at home, should we, instead of encashing on the boom, ban exports because the government lacks efficiency or political will to stop the illegal activity?.

The other argument — that mining the ore for exports should be allowed only if value addition is done at home, is also flawed. According to the Karnataka Government statistics, only 30 percent of iron ore deposits of the state can be mined, as the rest 70 percent is in the Western Ghats and other eco-sensitive areas. Of

this 30 percent mineable ore, only 10-12 percent is mined (i.e., 3-4 percent of the total reserves). If value is to be added to this ore before it is exported, the investment required will cross Rs 1 million crore. The power and water required for the current level of mined ore from the state, will leave less than an hour of power supply for domestic and farm use, at existing levels of availability of electricity. It will be difficult to find raw water even at Rs 2 a litre. Should we get into such a disaster mode? The government should consider ways to increase mining and export of this ore. Let us remember that Sweden consumes less than 3 percent of its mined ore — and exports 97 percent.

Sweden, for instance, consumes less than 3 percent of its mined ore. It exports 97 percent

ONE MORE important truth: steel-making makes up only 12-15 percent of the market price of the end product. Coal constitutes over 30 percent of the value of an end product. The main source of coking coal is China. Thus, merely having iron ore does not qualify us for making steel. Besides, if we ban its export, why should China send increased supply of coal to India? The government must realise that our strength is iron ore, not steel-making.

Also, the locals cannot be neglected anymore. People living around a mineral source should have a stake in this wealth and as such, get their due before the minerals are drilled out. A specific amount per tonne should be paid to local bodies to spend on welfare schemes in the area. In the absence of such a mechanism, local extortionists are able to collect illegal taxes from mine owners and engage in illegal mining.

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