Iron ore pricing based on transparent policies: NMDC

Facing allegations of incurring huge losses by exporting very high quality iron ore at low prices, the state-run miner NMDC today contested the report of Karnataka Lokayukta saying its pricing was based on transparent policies.

"It would be appreciated that the entire long-term contracts and its pricing on year to year basis was based upon the transparent policies and as per established worldwide benchmarks," the country's top iron ore producer said.

The Navratna firm exports less than 10% of its total production and the quantity exported is based on long-term contracts entered through MMTC, the canalising agency of Government of India, to Japanese and South Korean steel mills, it said.

The export contracts were usually for a period of 5 years, based on Government of India approval, NMDC said.

Karnataka Lokayukta in its report, as per information, said, "It is computed that the amount earned by NMDC for these shipments is a mere 40% of the possible earnings, had NMDC exported the same quantity at the average of sale rates charged by other exporters."

The Lokayukta report said that during the period, when the average rates of iron ore of all grades were fluctuating between $116 and $168 per tonne, the rates charged by NMDC were between $50 and $63 per tonne resulting in far less ore realisation than the potential earnings.

The report urged the government to take action in this regard while pointing out that there were 478 suspected cases of under invoiced export between 2006-07 and 2010.

The total under invoiced portion of sales is about Rs 2,222 crore in 478 cases, the report is understood to have said.

NMDC said the pricing mechanism of the international trade of iron ore is traditionally based upon the outcome of negotiations between the major customers like Japanese steel mills, Korea, etc, and large suppliers from Australia and Brazil.

"The contract for the period 2006-07 to 2010-11 was also drawn up on the above lines," it said, adding upon the entry of China as a large importer another mechanism "spot prices" was introduced resulting in price volatility and quarterly prices.

Accordingly, NMDC has also changed its pricing policy from annual pricing to quarterly pricing, factoring in the spot prices as well and the issues brought out in the Lokayukta report indicate that FOB (freight on board) prices quoted by it are the spot prices.