Mine of worms

India needs a national mining regulator

The words “mining” and “scam” seem to be inseparable. Most of these relate to mining of iron ore, although taint to other minerals can’t be ruled out. The ingredients of the scam are as follows. The state government grants mining leases to dubious private parties in a non-transparent way, certainly without a public auction. Maybe there are the so-called “bedroom” auctions. Subsequently, there is very little monitoring of compliance of lease conditions. Enforcement and monitoring officials are bought out, or become compromised. Crony capitalism ensures that this wink-and-nod indulgence cuts across political lines, hence nobody makes a fuss. Add to this cocktail the voracious appetite of pre-Olympics China for iron ore which caused ore spot prices to jump by 500 per cent in the past five years. To top it all, you have ministers entangled in this gold rush. This heady cocktail was bound to lead to unforeseen political explosions. In Jharkhand, a former chief minister is in the dock charged with “selling” leases, and old leases are being investigated. In Karnataka, the government was split and almost toppled due to charges of illegal mining in Bellary. The billionaire barons of Bellary owe their meteoric rise to wealth from iron ore mining, and among them are the Reddys whose writ runs large in Bellary, and who are also cabinet ministers. In Orissa, in response to a PIL, more than 125 leases have been suspended on charges of flouting lease conditions.

The Supreme Court-appointed Centrally Empowered Committee described Orissa’s mining leases as a “can of worms”. Finally, in Andhra Pradesh, the apex court has suspended mining operations of a mining company owned by the Reddy brothers of neighbouring Karnataka. The charges against the company are illegal mining, muscling onto neighbouring leases and encroaching state forest boundaries. As the political heat rises, there is, however, a danger that some obvious lessons may be lost in charges and counter-charges. The root causes of all these scams are inevitably linked to mispricing of the resource and licences, insufficient teeth for enforcement and monitoring of the leases, and an inadequate mechanism for addressing grievances. The mispricing problem can be fixed by making lease allotment more transparent, i.e. through a public auction. No special consideration should be given to “captive” mine leases, which often serve as disguised freebies. After all, since steel is sold at international parity prices, why should iron ore be artificially cheap to steelmakers? The same applies to coal, which will soon be auctioned to private miners and power companies.

Secondly, the enforcement and monitoring weakness can be fixed by setting up an independent and suitably empowered national mining regulator. The flouting of lease conditions can be easily verified by satellite imagery, a technology now used everywhere, from the protection of mangroves to detection of illegal construction. Indeed, the regulator may be required to display all satellite imagery of mines regularly on its website, much like the Trai reports on subscriber information of telecom players. Apart from leases, mining has many other challenges, such as land acquisition and rehabilitation of displaced people. The new mining reform legislation, currently in Parliament, is an opportunity to establish a new code of conduct for mining in India.