Steel industry protests extending iron ore mine licences, demand auction

MUMBAI: Steelmakers are pressing the government to auction iron ore mining licences currently held by private miners when they expire in March 2020. Winning iron ore mines via auctions will be a relief for steelmakers, who are forced to import costlier ore in the absence of captive mines.

Over the last week, the Indian Chamber of Commerce (ICC), Associated Chambers of Commerce and Industry of India (Assocham) and the Chattisgarh Sponge Iron Manufacturers’ Association (CSIMA) have written to NITI Aayog and the mines ministry, making a case for mine auctions. Mint has reviewed copies of the letters.

Welspun Steel, Tata Steel BSL (erstwhile Bhushan Steel), Jindal Saw, MESCO Steel, and Jindal Steel and Power (JSPL) are members of Assocham, while Tata Steel, JSPL and Shyam Steels are members of the ICC.

Mint reported on 21 May that production at non-integrated steel companies, which do not have access to captive iron ore resources, will be disrupted in 2020 if auctions are delayed. It will affect companies such as Rashtriya Ispat Nigam Ltd, Essar Steel and JSW Steel, which have inadequate captive iron ore resources and those that are either under stress or have been referred to the National Company Law Tribunal.

A 2017 report by the mines ministry found that licences for 334 mines, out of which 33 working iron ore mines with an annual production capacity of 55 million tonnes (mt), will expire in 2020. Odisha, Karnataka, Jharkhand and Chhattisgarh are India’s ore-rich states.

In its letter to Amitabh Kant, CEO, NITI Aayog, ICC said accepting merchant miners’ request to extend their licence till 2030 would mean huge revenue loss by way of auction premium for the exchequer. A letter from Assocham claimed that in Odisha alone, with 16 working iron ore mines of combined capacity of 53 mt, extending the licence period by 10 years would lead to a presumptive loss of ₹79,500 crore, based on auction premiums paid in the past.

A 2015 amendment to the Mines and Minerals (Development and Regulation) Act, 1957, extended merchant miners’ licences to their mines by five years till 2020. By this time, the mines were expected to be readied for auction, with new environmental and forest clearances in place.

The initiation of the auction process was delayed till the latter half of 2019 because of the Lok Sabha elections. This could further delay timely auction, since the process takes three to six months to complete, leaving the steel industry in limbo. The iron and steel sector has a total fund-based banking credit of ₹2.85 trillion and most companies do not have assured iron ore access.

The dearth of domestic iron ore supply will necessitate an increase in the import of iron ore mix, which costs 50% more than domestic ore. This will potentially lead to an increase in the cost of production, a May report by credit rating agency India Ratings said.

The delays in starting operations were primarily because of the delays in obtaining environmental, wildlife and forest clearances. The G2 resource prospection, the third stage of geological assessment, is a pre-requisite for auction.

The letters from the steel industry to the government suggested that to prevent further delay, existing environmental and forest clearances for operational mines can be extended by three years to the new licensee.