Supreme Court allows auction of category-C iron ore mines in Karnataka

Industry says conditions attached will restrict competition in bidding

The Supreme Court last week allowed the Karnataka government to e-auction the 'C' category of mines that are economically viable. C-category iron ore mines were last allowed to resume operations after mining operations were banned a few years ago and a cap was subsequently imposed on mining activity in the region.
 

The development augurs good news for Karnataka, where the demand for iron ore has shot up in the wake of the state's growing steel capacity but the industry representatives say restrictions placed on bidders during the e-auction will fail to attract players into the region.

On September 13 2017, the Supreme Court had allowed the Karnataka government to organise an e-auction for the 'C' category of mines that are economically viable.

The e-auction process is meant to help bring transparency, besides fetching the right value for the proposed mines. However, restricted participation in the form of allowing only end users located in and around Karnataka to participate in the bids reduces competition, thereby, defeating the entire intent of fetching fair prices for the mines on sale, rue industry players.

Further, limited participation leads to market monopoly enabling large-scale private steel players to corner valuable resources. The concentration of resources, thus, leads to widespread economic disparity and is not ideal, said Basant Poddar, former Chairman and member, Federation of Indian Mineral Industries (FIMI), South.

He added, since only 7 of 51 'C' category mines have been auctioned, it has not served the purpose of supply of captive ore, which leads a revenue loss of thousands of crores to the state government. The combined capacity of all 'C' category mines stands at 5 million tonnes per annum. In 2013, the Karnataka government has cancelled leases of 51 Category 'C' mines.

The Central Empowered Committee of the Supreme Court had categorised 166 mining leases into A, B and C as per the extent of illegalities committed by them. Category A comprised 45 mines that had negligible or no illegalities. Category B comprised 72 mines where pits were found outside the lease area and 51 Category-C mines were those where operations stretched beyond their lease boundaries by more than 15 per cent.

While urging for the expeditious auction of new mining areas, he added that everyone should be allowed to participate in the bidding process. He also urged the state to form clusters to attract more bidders.

An official spokesperson from Vedanta said: "the e-auction per se will not ensure transparency and fair pricing unless it is more inclusive and competitive. The Supreme Court has asked the state government to submit a more cohesive proposal to auction the remaining 'C' category mines. The state should proactively work to ensure that the mines are economically viable and fetch the best price in a transparent process."

Currently, Karnataka is a closed market and only end-users in and around the state can purchase iron ore in the region. The plants can import from other states and outside the country, while the leases cannot export or sell to traders. Moreover, the pricing of iron ore in Karnataka does not follow any international index.

In April 2013, the apex court had directed the Karnataka government to cancel 51 'C' category leases for involvement in illegal mining and had also asked it to re-allot them to end users through a transparent bidding mechanism.

In 2016, the first round of auction was conducted and 7 mines were sold by the state. Among the buyers were JSW, that bought 5 mines and MSPL that won the bid for the remaining two mines. However, the second lot involving the auction of seven mines went under the hammer as it failed to elicit any response from the prescribed end users.

UNDER THE SCANNER

• The CEC had categorised 168 mining leases in Karnataka into A, B, and C, based on the extent of illegalities committed by them

• Category A comprised 45 mines that had negligible or no illegalities

• Category B comprised 72 mines, where pits were found outside the lease area

• 51 mines that operated in more than 15 per cent area outside their lease boundaries were put under Category C

• SC has asked the states to submit a more cohesive proposal to auction the remaining C-category mines