Why I think leasing out any mines at this time without linking it to ad valerom, International Market price is a give away, a loot and a scam rolled into one? I will give the reason below. First please read below the very interesting news article about SAIL(Steel Authority of India Limited) plans.
Ad Valorem is a potent term, which means that price is linked to the value, going up or down based on it's International market price.
News paper article in The Telegraph:
Subject: SAIL would source about 30MT of iron ore from its seven mines in Jharkhand and Orissa.
Fresh techies make way for SAIL unit - PINAKI MAJUMDAR
Jamshedpur, Nov. 7: XXXX SAIL operates seven mines at Kiriburu, Megahataburu, Gua, Chiria, Bolani, Barsua and Kalta. The steel company is soon going to start mining operations at another iron-ore mines at Taldhi, between Barsua and Kalta.
A spokesperson of SAIL told The Telegraph that along with the 41 trainees, SAIL has also made recruitment at the middle management level, consisting of project engineers to meet the growing manpower requirement at its mining division. Moreover, the company is also planning to appoint geologists to fill up important positions.
The newly recruited engineers will fulfill the vital human resource requirement in the present mines as well as in the mines that are coming up at Chiria and Taldih, he said. SAIL has fixed a target to produce over 25 million tonnes (MT) of steel by 2011, for which iron ore requirement would be over 40MT. The raw material division would source about 30MT of iron ore from its seven mines in Jharkhand and Orissa.
This gives me an opportunity to demonstrate to the concerned citizens, why I say, we are missing out on focusing on the important issues of the deals.
Talking about Royalty, it being fixed at ridiculous Rs. 27 or $0.68/tonne by center ( by Govt of India) as an issue, which should be addressed foremost. In any independent country. Member of it's Parliament, dictate the policies which the bureaucracy implements. But why are our MPs more or less silent on this issue? To me silence is ominous and situation seems suspicious and we are probably in the middle of a scam. Where does the MPs allegiance lie? It should be People of their respective states. Yet they are silent when so much money is being drained out of the exchequer. There is no convincing reason to imagine that the MPs are unaware of these issues. When such huge money is involved, such deafening silence seems suspect.
Let us take this case of SAIL, which is a public sector undertaking. It's profits are theoretically to be plowed back to the revenue of the country, which in turn shares it with the states.
Each part of the country has it's own advantages & disadvantages of natural resources. Some are endowed with natural resources others are not. Those who are, like Orissa state and have other disadvantages, should insist on getting a fair price & return on depletion of their resources.
Only way to plow it back to the economy of Orissa, we have to insist on GOI, to raise the Royalty, proportional to the to international market price (rise) of the Iron and other ore. Presently the value of high grade lump Iron Ore from Orissa, is approx. $100/Tonne, less the raising costs. Of which we retain only $0.67 as Royalty. This is laughable but let us calculate the results.
Let us consider that we ask for higher Royalty at the ad valorem, at 50% of the international Market price to SAIL.
This will enrich the state of Orissa, @ $50/Tonne 50*40million =$2000 million or $2 billion or 8000 crores, approx, per year.
That Rs. 8000 crores will provide us with:
1. 8 IITs / year with our own money.
2. 15 times the present total Railway investment in the state.
3. 2 times the total annual commercial tax revenue, so we can abolish all sales taxes, octori taxes etc.
4. We can give any student who wants to study, all the loan they want.
5. We can also give loan to our entrepreneurs, the money they need, to invest
etc etc etc
And all this from only the earnings of one year.
We don't have to go every year begging to the GOI.
So why not?
Because there is a written and a signed lease contract with SAIL, which will prevent us from doing the same. Similar contracts are with NALCO, TATA etc. So those are lost cases.
But it can be done in case of TATA's, Mittal's or POSCO's, new plants and new leases, which are to be signed at the end of MOUs.
But only and only if, Govt of Orissa(GoO) does not sign new contracts in same terms, as in the MOUs.
So I think the R &R issues are diversionary and a SIDE SHOW. The pro-people lobby is fighting the wrong battle for better rehabilitation benefits, while all of the above companies (TATAs, Mittals or POSCO ) are going to laugh their way to the bank.
Because the money that these MNC(Multi National Corporations) and LNC(large National Corporations) will pay for rehabilitation and land, is equal to savings from only 8 million Tonnes, of the cost of the Iron Ore. So what if they pay a higher price for the land? If I were the CEO of POSCO I would create a problem in R & R area, in the beginning to divert attention away from the deal where lies, most of the money. I will demo that again below illustrating with POSCO numbers.
Similar is the case of VEDANTA, which needs bauxite, but it has different numbers but though equally bad. I will cover the same later.
To demo what I am talking about, let us run the same numbers through the POSCO numbers:
POSCO who will produce 12 million tonnes, thus will need approx 20 million Tons of Iron Ore/year.
POSCO will save them $100*20 million = $2 billion per year based on current international Market price. Or 8000 crore at current exchange rate. ($1= Rs. 40)
If POSCO agrees to pay 20 lakhs / acre (2 times the current highest price of 10 lakhs per acre offered by any Govt. in India) their pay out for 4000 acres, will be about Rs. 8 billions (Rs. 20 lakh/acre *4000 acres = Rs 8oo crore) or $200 million only, for the land.
And land is to be paid for one time only.
In other words even ignoring free water, free disposal of waste, low Royalty price of coal etc and SEZ advantages, POSCO will make a profit of 7200 crore in the first year and 8000 crore for the rest of their working plant life in Orissa from savings in Iron Ore prices, alone. Other benefits will add up at least up to a similar amount, if not more. There is also no cost to be paid for pollution and disposal.
If Orissa Govt Orissa(GOO) gives POSCO, 600 million tonne mines on lease, GOO will give away $60 billion to POSCO, at current prices for iron Ore. This ignores the international Market price rise which is expected to double in less than 5 years.
Shipping out 30% or 180 million Tonnes of high quality Ore, will be like giving away $18 billion to POSCO without any indemnity. Because POSCO’s whole plant is to be a $12 billion investment. Do you friends think that GOO has where withal to get back this Ore, from an MNC?
I can take the risk it in writing they will pay at 68cents/ Tonne ($125 million) and a penalty of $100 million or so. Because they don't have ore, and they buy it at $100 plus, which will cost them probably Whopping 20 to 30 billion Dollars, and $40 billion if prices escalate as projected in next 5 years.(include transport)
So some donation to some party fund, $ million or two to the those who need to be bought and buy an arbitrator and fix a deal like I have said above. It will cost may be another $100 million a saving of $25 billions to $40 billion for POSCO.
600 million * $100 at today's price =$60 billion dollars ignoring all other savings (the International price of Iron Ore is expected by the futures market to go up 30% in the coming year of 2008 alone) they will make or costs they don't have to incur, compared to other locations.
Similar is the case with all others: Tatas, Mittals, POSCO and VEDANTA.
I would like to draw every body's attention to these numbers and request them to rethink their blind support for such deals.
I do agree that giving mining lease to the mining company without asking for the international market price is an equally bad give away of public resources.
Fix the Royalty at 50% of the ad valorem International market price for in state Integrated Steel plant(ISP) or Aluminum plants .
Fix the Royalty at 60% of the ad valorem International market price for ISP or Alumina plants located in other states of India.
Fix the Royalty at 80% of the ad valorem International market price for Export.