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Industry on edge in Karnataka as SC weighs verdict

If court puts a cap on iron ore mining in Karnataka, it will be a severe blow to steel industry's expansion plans

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The ’s (CEC) final report on illegal mining in Karnataka submitted to the recently has sent shockwaves through the in the state. Some of the recommendations of the CEC, if accepted by the Supreme Court, will curb illegal mining and that is a laudable goal. However, in doing so, it may also deliver a hammer blow to the state’s expanding steel industry.

A year ago, the Supreme Court had directed the CEC to probe illegal mining in Karnataka and recommend measures to clean up the mining mess in the state. “Rampant unauthorised, unregulated, environmentally unsustainable and illegal mining in its various facets and consequent massive encroachment in the forest area perhaps had no other parallel in the country. The massive illegal mining and transportation had become possible because of the blatant connivance of the concerned officials and public functionaries,” the CEC concluded in its report.



The CEC said that after taking into consideration the respective lease area, the iron ore reserves in the lease area and the other relevant information, the state of Karnataka would prescribe the maximum permissible production of iron ore from each of the mining leases located in the districts of Bellary, Chitradurga and Tumkur.

After completing the survey of all 166 mining leases over the last one year, following the direction of the Supreme Court, the CEC has recommended restricting the extraction of precious iron ore to just 30 million metric tonnes (MMT) annually. Of this, 25 MMT should be extracted in Bellary district and 5 MMT in Chitradurga and Tumkur districts together.

A spanner in expansion plans
If the Supreme Court accepts the recommendations of CEC and orders capping iron ore production at 30 million tonnes (mt) per annum in Karnataka, it would mean a full stop for projects that were in major expansion mode. Karnataka currently produces about 14.36 million tonnes of steel annually, about 26 per cent of the national production. The existing steel units require about 25 million tonnes of iron ore annually.

This has understandably thrown steel companies into a tizzy. “At a time when the steel industry is set to grow rapidly adding new capacities to meet the growing demands in the domestic market, capping the production of iron ore would jeopardise several expansion projects and setting up of new steel mills in the state,” a senior executive of said.

JSW Steel operates India’s largest single-location steel plant with a capacity of 10 million tonnes per annum at Torangallu in Bellary district. It is also in the process of expanding the capacity to 16 million tonnes at an investment of Rs 18,000 crore.

During the global investors’ meet (GIM) held in June 2010, the state government signed 50 investment proposals worth Rs 2.5 lakh crore in the steel sector. Of these, seven projects with an investment exceeding Rs 1 lakh crore and with an employment potential of 100,000 people are in advanced stages of implementation. They would produce 35.2 million tonnes of steel annually and their requirement of iron ore alone would be in the range of 60 million tonnes annually. They include , , Limited, Tata Metaliks Ltd, Hazira Steels Limited and expansion of JSW Steel.

In addition, National Mineral Development Corporation (), a public sector mining giant has proposed to set up a three million tonne steel project at a cost of Rs 20,000 crore in collaboration with OAO Severstal of Russia for manufacturing special grade steel. These projects may take anywhere from 24 months to 60 months to come into production. Most of them have already tied up with the Karnataka Industrial Area Development Board (KIADB) for their requirement of land by depositing 40 per cent of the acquisition cost. Tata Metaliks and Arcelor Mittal are already in possession of land.

Meanwhile, the Karnataka government in a fresh affidavit submitted to the Supreme Court has pleaded that, “the cap suggested in the report appears to be based on the present consumption pattern rather than on the considerations of the sustainability of the environment as mandated by the Supreme Court. This cap thus needs to be revisited and reappraised.” The government has also urged the court to give permission to Category A mines to be reopened in order to ensure supply of raw material to existing steel units.

End of exports
The capping of ore production also means that the miners in the state will have to abandon any hope of catering to an export market. The state, which contributes to a third of India’s iron ore exports at about 30 million tonnes, will lose its position in the international market, says Praveen Kumar, Chairman, Maya Iron Ores, a derivative commodity brokerage firm.

As it is, during the current year, India’s share of exports in the world market is set to decline to about 10 per cent and in the next year, it is likely to further drop to about 5 per cent, at about 35 to 40 million metric tonnes. “Demand from China is steady, they are getting ore from Australia and Brazil. Australia and Brazil are together adding about 500 million metric tonnes of exportable capacity in the next five years. Whereas in India, we are closing down our mines and losing our status as the third largest exporter of iron ore in the world. We may drop to 6th or 7th position,” Basant Poddar, managing director, Mineral Enterprises Limited said.

One reason given for banning exports was that Karnataka is going to run out of iron ore in 15 to 20 years. “This is a fear not founded on facts,” says D V Pichamuthu, director, south, Federation of Indian Mineral Industries (FIMI). “The only authentic source to obtain resources figures is the Indian Bureau of Mines (IBM) under the Ministry of Mines, Government of India. As per IBM, the resources of iron ore in Karnataka as on April 1, 2005 was 1.68 billion tonnes (bt) which has gone up to 2.16 bt as on April 1, 2010 after consuming over 200 million tonnes during this period! How has this happened? This has happened because exploration during this period has expanded the resources base. Therefore, the key is to lay emphasis on exploration,” adds Pichamuthu.

Moreover, Pichamuthu says that the current estimate of resources is only up to a depth of 50 metres, whereas it is known to extend up to 150 metres. Secondly, current estimates have considered a cut off grade of 55 per cent of iron. But, the Government of India has announced in 2009 that this will be revised to 45 per cent. The IBM is yet to re-work the estimate taking these factors into account. If all these actions are taken, iron ore will last for at least 170 years even if extraction continues at the rate of 40 million tonnes per annum, Pichamuthu explains.

All the above pertains to only hematite ore. Karnataka has huge resources of magnetite iron ore amounting to 7.8 bt ie, almost four times the hematite resource. This lies mostly in the Western Ghats and FIMI has proposed that this can be worked safely with minimal damage to the environment using underground mining technologies similar to that of in Sweden and South Africa.

However, the CEC has rejected the proposal of the Indian Council of Forestry Research and Education (ICFRE) for conducting studies to explore iron ore resources in the Western Ghats as the ghats are considered one of the eighteen rare, biological treasures of the world. While the Supreme Court is expected to pronounce its verdict in the matter very soon, miners and steel companies will be desperately hoping for a ruling that will give them a second life.

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