NMDC sues Karnataka over revenue share from Donimalai mine iron ore

The PSU had decided to suspend operations after the Karnataka govt imposed 80% premium on iron ore sales from the mine

NMDC Ltd on Monday filed a case against Karnataka Government for claiming for larger share of revenue from the sale of iron ore from the Donimalai mine in the state. It may be recalled that last month, NMDC had decided to suspend iron ore mining from Donimalai after the Karnataka government imposed 80 per cent premium on sales of the mineral from the mine.

While an NMDC spokesperson was not available for comment immediately, industry sources have confirmed the development and have said the matter is posted for January 10 at the Karnataka High Court.

A source close to the development said one of the main reasons the company moved the petition was the state's decision to fix 80 per cent premium on iron ore sales from the mine, when not only in India, but even globally no companies make such a margin. "There should be some logic before fixing any number," he said.

Meanwhile, it has been reported that Karnataka Government is planning to auction the Donimalai iron ore mine as NMDC refused to pay an additional levy on ore sales, says a Reuters report.

NMDC suspended its operations at the mine last month, as an 80 per cent premium would have an adverse effect on its revenue. Source estimate that NMDC would be losing Rs 1,348 per tonne, due to which its annual losses would stand at about Rs 9.44 billion. Donimalai capacity is about seven million tonnes.

NMDC's decision to suspend iron ore mining would result in an increase of 10-15 per cent in iron ore prices, say industry sources. The current price in Karnataka is Rs 1,500-2,500 a tonne, depending on the categories. 

Basant Poddar, former chairman and member of Federation of Indian Mineral Industries (FIMI), South, had earlier said that the decision (to impose an 80 per cent premium) was the prerogative of the state government. "As per the Auction Regime Act, 2015, the government cannot levy any premium on the existing mines, however, it can do so on new/ renewed mine leases,” he had opined.

Mining companies are already paying 15 per cent for royalty, 20 per cent for SPV, 4.5 per cent DMF (District Mineral Foundation) and 0.5 NMET National Mineral Exploration Trust.

This suspension will cause a temporary disruption on the supply of raw material, said Poddar and will lead to 10-15 per cent hike in price.

The Karnataka cabinet has approved the mining lease of Donimalai till November 2038, on payment of 80 per cent of the average sale value as published by Indian Bureau of Mines, said NMDC.

NMDC told the Karnataka Chief Minister that the levy is not economically viable. The Chief Minister, NMDC says, in turn directed all concerned to relook at the legal and other issues, following NMDC's representation.

NMDC slashes prices

NMDC has reduced the iron ore prices, with the lump ore prices coming down by Rs 300 per tonne, to Rs 3,250 per tonne, from Rs 3,550 fixed on December 1. The prices of fines dropped by Rs 250 per tonne, to Rs 2,860 per tonne from Rs 3,110.