Fimi's push to extend merchant mines' tenure rankles steel, pellet makers

End-user industries say 200 mn tonnes iron ore capacity still operative after lease expiry

The Federation of Indian Mineral Industries (Fimi)'s discussions with the Union government to extend the lease validity of merchant mines has vexed the steel industry and other end users.

The validity of non-captive or merchant mines is expiring by March 31, 2020. Flagging concerns over a possible crunch in raw material supplies, Fimi had recently appealed to the planning think-tank Niti Aayog to extend the period of their operations till 2030, co-terminus with the captive mines.

In a rejoinder to Fimi's submission, the Pellet Manufacturers' Association of India (PMAI) has clarified to Niti Aayog that the crisis painted by the mining body is illusory. “There will be no dearth of supply of iron ore post 2020, if the existing mines produce up to the EC (environment clearance) limit. The estimated production of iron ore was 201 mn tonnes in FY19 which is 4.3 per cent lower on a y-o-y (year-on-year) basis. This production can be maintained even after lapsing of mining leases due on March 31, 2020,” PMAI has maintained.

To corroborate its case, PMAI noted that even after 2020, total production capacity of operative merchant mines would still be 100 million tonnes (mt) per annum, consisting of NMDC's 37.8 mt, Odisha's 43.72 mt and 20 mt in Karnataka. Over and above merchant leases, captive mines in Odisha, Jharkhand, Karnataka and Chhattisgarh will have a combined capacity of 99 mtpa, leading to approximately 200 mtpa in iron ore capacity despite older merchant mines going offline. To supplement the total output, some of the virgin iron ore blocks won through competitive auctions, are expected to commence mining after 2020. 

“The speculation of some mining association that there will be crisis like situation if the leases due to lapse on March 31, 2020 are not granted immediate extension are false as balance existing operating leases are capable to meet the domestic requirement”, PMAI asserted in its letter to Niti Aayog.

Manish Kharbanda, executive director, Jindal Steel & Power Ltd (JSPL) and president, PMAI feels any proposal to extend validity of merchant mines belies logic. “The new MMDR Act was enforced in 2015 and merchant miners had ample time to prepare their blocks for auctions. On what grounds should the government allow any further extension? On the one hand, you have captive mines that have to contend with an Ebitda (Earnings Before Interest, Taxes, Depreciation and Amortisation) margin of 20-25 per cent as opposed to 300 per cent for merchant miners. Why can't the merchant mines be auctioned," he asked.

By pleading for extension of merchant mining leases by 10 years, Fimi has been unkind in the larger context of value addition, said Kharbanda, also co-chairman of Assocham mining committee and head, mining & manufacturing at Indian Chamber of Commerce (ICC).

While a captive miner sinks in large investments on a steel mill or other end-use plant, with thrust on value addition and employment, the entire profit raked in by a merchant miner goes to the mine owners. Moreover, a merchant miner contributes about 25 per cent of the Indian Bureau of Mines (IBM) declared price to the exchequer. This is barely half of the over 50 per cent contributed by a steel or other end-use plant for the same mineral.

“Extension of leases expiring in 2020 to 2030 for merchant miners would defeat both purposes. It may also amount to manipulation for not complying with the Supreme Court order for allocation of mineral concessions through auctions and also lead to revenue losses for the government such as auctioned mines are at very high premium,” PMAI reasoned.