KIOCL seeks removal of 5% duty on export of pellets

Firm has to procure iron ore from NMDC's mines in Chhattisgarh and bring it to Mangaluru as it cannot use ore from Karnataka meant for exports

The voices calling for the removal of 5 per cent duty on export of iron ore pellets and a reduction in duty on the export of low-grade fines is getting louder as the Budget day nears. After a host of private miners across the country, the public sector miner and pellet maker KIOCL Ltd has raised its voice in favour of the reduction in duty on export of pellets.

The Bengaluru-based company, which has its pellet plant at Mangaluru on the west coast, has said that the duty on export of pellets at 5 per cent is hurting its interests. The company is forced to procure iron ore from NMDC’s mines at Bailadila in Chhattisgarh and bring it to Mangaluru via sea, and rail routes as it cannot use ore from Karnataka for the purpose of exports.

“As the Supreme Court has restricted use of Karnataka ore for export purposes, we are bringing iron ore from Chhattisgarh by paying huge cost on freight. Given the current market price for pellets we are unable to even recover our operating costs. We have requested the ministry of finance to withdraw 5 per cent duty on export of pellets and waiver of duty on Fines. Besides, we have asked the Railways to remove distance based charges,” Malay Chatterjee, Chairman, KIOCL told Business Standard.

The landed cost of iron ore at its pellet plant in Mangaluru works out to Rs 6,000 per tonne as it brings ore via the 1,500 km sea route and 700 km of rail route from Chhattisgarh. The sale price of pellets in the domestic market is also in the range of Rs 6,000 per tonne. “Our establishment costs are huge. Due to the differential freight policy of the Railways, we are paying an additional Rs 1,800 per tonne of ore as against the normal freight of Rs 1,000 per tonne. As a result, during the current fiscal, we have operated our pellet plant for hardly 100 days,” Chatterjee said.

The KIOCL operates a 3.5 million tonne per annum pellet plant at Mangaluru. Ever since it stopped its captive mines in 2006 following a Supreme Court order, it has been sourcing raw material from NMDC’s mines in Chhattisgarh. “Whenever we have tried to participate in the Karnataka e-auctions, the price goes up and we cannot use the local ore for export purposes due to the court directions. Hence, we are totally dependent on ore from Chhattisgarh,” he said.

The pellet makers have invested Rs 35,000 crore in recent years and the capacity was estimated at 55-60 million tonnes per annum in FY14. After the imposition of 5 per cent export duty on pellets, the country’s exports have drastically fallen forcing the companies to sell in the domestic market.

Iron Ore Exporters’ Association has also made a demand for a cut in the export duty on iron ore fines from the current level of 30 per cent. The association stated that the low grade iron ore fines (60-58 per cent Fe and below) have very less relevance to the Indian steel makers. These fines are stocked up at various ports on the eastern coast and have become a huge problem in the last six-eight months for the exporters, port authorities and the original owners of the material.

Low grade material remains unused and domestic buyers are not showing any interest in this material despite many mines remaining closed due to the ongoing ban in Odisha, the association said in its memorandum to the government.