Auction those mines

Time to implement the Hoda report

Whether or not you believe the numbers put out by the Central Bureau of Investigation (CBI) on former Jharkhand Chief Minister Madhu Koda’s wealth, there is little doubt that the mining lobby has gained enormous financial clout and, through it, political power. If in doubt, look at recent events in Karnataka, where the mining lobby has humbled the sitting chief minister. It is obvious that the miners’ power flows from the enormous rents that they control once mining rights/licences are handed out to them. Since getting or not getting a lease is the difference between large sums of money and none, it is hardly surprising that these lobbies are liberal when it comes to handing out money to ensure that the present rules continue. That might explain why the government does not take the obvious step of auctioning mineral fields, in preference to the arbitrary selection process that exists today. An auction system will bring transparency into the system. Even in the fight between the Ambani brothers over Krishna-Godavari gas, no one has ever alleged that the government favoured Reliance Industries while giving out gas fields for exploration and development — because the fields were bid for in open action. If auctioning can work in the case of oil and gas fields, where the extent of the mineral deposit is not certain, why would it not work in the case of iron ore and coal, where the extent of the deposits is pretty much known at the time the mine is leased out? If rent-seeking is eliminated through an auction system, the mining lobby would lose its teeth.

It is in this context that the government would do well to dust off the Hoda Committee report that went into these issues three years ago. A Group of Ministers could be asked to study the report and take quick policy decisions in favour of its major recommendations. One issue in this connection is whether those who want the reserves of iron ore or coal for their own consumption should be given preference, or whether “merchant” miners (who would sell what they mine to the highest bidders, including customers in other states and overseas) should be given a level-playing field in the bidding process. Some argue that free-market pricing of minerals would price out value-adding industries like steel and aluminium, while others argue that firms do buy ore/coal at market prices and remain competitive. Open auctioning does not prevent the government from putting in place an end-use policy, as has been done for gas. Such a policy could give preference to domestic customers in the case of mineral deposits that are only sufficient for the country’s own foreseeable needs. The point is that oil refineries like Reliance import crude oil at market prices and are competitive; so why shouldn’t a steel mill be able to compete in the market for both raw materials and end-products?

It will be important to get states on board since a mine cannot be exploited unless the state government concerned grants a mining lease. Several states continue to argue that they will not grant leases if the ores are to be used for value addition outside the state — in which case, it is very possible that the states will not come on board easily. Once again, a properly framed end-use policy could provide the answer.