Friday, December 07, 2007

The World's resources are limited - Sandip K . Dasverma

The World resources are limited. This understanding dawned in recent decades, resulting in sky rocketing prices of natural resources. $100/ Crude oil barrel (up from $1.28 in 1970). Iron ore International Market price(IMP) has soared to $100/Tonne( see: http://www.econstats.com/rt_ironore.htm). ($1=Rs. 40)
And is still going up(http://metalsplace.com/news/?a=16372)
By common sense no one will off load stocks, when prices are rising. Thus it is not clear, why the Govt. of Orissa(GOO) is eager to sell off its Iron Ore reserves at throw away prices(Current Royalty Rs. 27/Tonne) to the likes of POSCO or TATAS or Mittals and many others.
In a democracy the only way to stop such deals is by informing/educating public and the civil society.
The cancellation of sale of NALCO couple of years back was an example of education of the civil society and general public. The common alibi is: Royalty prices have been fixed by Govt of India(GOI), not us. But in a democratic free country what prevents the GOO from asking for a revision, at an ad velorem rate? And why this haste in signing off the rights before such a revision?

The following data/numbers will explain, why:
1. In 2006 GOO leased mines raised 47.6 million Tonnes of Iron Ore. This has brought the miners, $4.76 billion at the international market price of $100/ Tonne. The cost of raising and transporting is only $450 million. So a net profit of $4 billion has gone to the miners or ISP(Integrated Steel Plants).
If OMC(Orissa Mining Corporation, a public sector undertaking owned by GOO) handled the whole business, GOO would have profited by $4.00 billion or Rs. 16 thousand crores.
2. But OMC can’t, because it is undermined by both inefficiency, corruption & the political influence of the mining lobby.
3. Thus mining rights were doled out to the private mining companies, who mostly export and to ISP, who mine and process. Miners & ISPs, paid only $30 million(Rs. 120 crores) as Royalty, Rs. 24($0.60) per Tonne to GOO.
This surely needs to change, if Orissa is not to remain perpetually poor, while it's family silver wire is sold off.

POSCO case - A similar analysis:
1. POSCO will consume 20 million Tonnes of Iron Ore in 12 million ton ISP per year. At Rs. 27($.68) it will pay 54 crores/ year. However the ore price is Rs. 8000 crores (Rs. 4000 X 20 MT)
2. At current prices GOO will give away rights for $60 billion or 240,000 crores worth Iron Ore for a mere 1620 crores. The price is expected to rise between 20 to 50%(http://metalsplace.com/news/?a=16372). Incidentally while GOO is selling it’s assets, China is trying to buy mining company Rin Tinto for $350 billions for it’s mining leases. In other words the Orissa lease will increase POSCO nett worth by $60 billion plus.
3. MOU has a clause by which POSCO will ship out 72000 crore ($18 billion) worth(30%) Iron Ore to it’s other plants, through it’s own port? It has to pay $18 billion plus the transport to bring it back. Who will keep account? At the end POSCO will probably go for arbitration and even if they pay $1 billion as fines, they will come out ahead.
4. This is added to the fact that when the plant machinery comes it will pay no taxes, since they have manipulated to get an SEZ, from GOI.
5. They don’t pay for water,for coal, dolomite, chromite etc.
6. They don’t have a clause in the MOU to restore land and treat their effluent, since laws of the land are not applicable to SEZ.

My recommendations:
Three ad velorem Royalty rates:
1. 50% for ISPs in Orissa, applicable to POSCO. They pay all taxes to the GOO, the main advantage of having an instate ISP. At this rate POSCO plant will bring Rs.4000 crores (20 MT X Rs. 4000 X 0.5) per year, same as current GOO budget.
2. 60% for ISPs in other Indian states. (Currently about 5 Million Tonne, will bring Rs. 1200 crores)
3. And 80% for the mining companies, to export. (Current 45 Million Tonne, will bring to GOO, Rs. 14,400 crores/year)
4. All environmental laws should be operative.
5. The R & R is a minor 4.5 % of the current give away to the ISPs and also one time only. All evictees should be fully compensated. The 900 crore payout is 20 lakh / acre per of 4500 acres of land to be acquired. I think they should be paid 10 lakhs and be given other 10 lakhs as postal saving bank deposits.

Common sense should prevail:
GOO should give first priority to change the GOI policy. Because they are losing out nearly 20 thousand crores per year for each of next 30 years.
The MPs and ministers from Orissa, 36Garh, Jharkhand should form an IRON ORE Alliance.
Like the Organization of Petroleum Exporting Countries (OPEC), they should get together to ask for higher Royalty, for minerals? Recently the CMs have got together and are trying to meet the PM but only to have the mine allocation rights restored to the states, not request to raise the Royalty. This is na├»ve and only good for the political parties – who can raise election donations from the mining lobby but not good for people of Orissa, who are remaining poor.
For ISPs currently operating in AP, MP, Karnataka and West Bengal, to bring them into IRON ORE Alliance, I have suggested a compromise formula, a Royalty at 60% of the IMP.
The change in above policy is clearly necessary before signing of the POSCO contract. Similar protective steps are necessary before Mittal, Jindal, Tata contracts are signed.