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The Supreme Court order allowing relief to Odisha's defaulting miners to pay off their pending compensation with interest has revived hopes of growth in iron ore production in the state.
With one large merchant miner- Essel Mining & Industries making its payment in full after the stipulated December 31 deadline and a few other miners expected to follow suit, iron ore production in Odisha is expected to pick up steam from the next fiscal.
Apart from Essel Mining, state-owned Industrial Development Corporation Ltd (Idcol) has also paid its share of compensation of Rs 1.05 billion after the court ordered deadline. The apex court has condoned the delay in payment by Idcol and allowed it to resume mining operations after paying 12 per cent interest. The apex court also condoned the delay in payment by Essel Mining but has not approved the resumption of mining as other cases are still pending against the lessee.
"Both Essel Mining & Idcol have paid compensation after the Supreme Court mandated December 31 deadline. Now, with the court allowing the Odisha government to continue collection of compensation, more miners would strive hard to comply to save their leases and also assets from being confiscated. As per some provisions in the Mineral Concession Rules, the state government can allow 60 more days to the miners to pay their arrears though the court has not spelt any timeline", said a mining industry source.
After the December 31 deadline lapsed, the Odisha government stopped operations of seven working iron and manganese ore mines owned by Serajuddin & Company, Korp Resources, Mesco Steel, Idcol and National Enterprises. The shutdown of these mines knocked off about 20 million tonnes in annual iron ore mining capacity.
The deficit in January-March quarter is estimated to be around three million tonnes.
The closure of working iron ore mines triggered unprecedented hikes in prices by both Odisha miners and National Mineral Development Corporation (NMDC). Iron ore lumps prices climbed up by Rs 400-500 per tonne. The spurt in iron ore prices is expected to raise cost of steel production by Rs 800-1000 per tonne.
A leading iron ore miner in Odisha expressed optimism that price hike would not spill over to the next fiscal. "The Supreme Court's lenient view on allowing compensation payment after the deadline should spur the miners to clear dues. Once production resumes from the closed mines, there would be ample supplies and this will arrest any further hike in prices. Besides, there are some non-working mines who have paid penalties and they are expected to restart operations after other statutory violations cases against them are resolved."
Ratings agency Icra notes that the recent sharp rally in iron ore prices is unlikely to sustain into the Q1 of FY19.
"Icra notes that the larger Odisha based miners who have delayed compensation payments, have either already deposited the amount demanded by the state government in January 2018, or are in the process of arranging funds, and are therefore likely to pay the same shortly, given the buoyant ore prices currently. In such a scenario, subject to the Supreme Court's approval, the temporary discontinuation of operations may be withdrawn for the miners", it said.
According to Icra's projections, the overall iron ore requirement in the country would be about 155 million tonnes for FY18 against an expected domestic production of 203 million tonnes. Even after considering the supply disruption in Odisha in the January-March quarter, the domestic oversupply of iron ore would continue which in turn would keep prices under check in the medium term, Icra noted.