The Hindu Business Line : Mining policy: Iron out the leasing issues

Iron ore mining has become a contentious issue. The cost of producing a tonne of iron ore in India is around Rs 300, while its price in the international market is around Rs 1,800. In the last 30 years, the labyrinthine policy ensured that no one got a large mining lease — no public sector unit, Indian company, or international corporate. Yet, the very same policy granted hundreds of small mining leases over the years.

What is wrong?

Mines with capacity less than 5 million tonnes per annum can, and do, use the state infrastructure — roads, power, ports and water systems keeping for themselves large margins. If the scale of mining had been in the 5-15 million tonnes per annum category, as in major iron ore producing countries, the sheer volume of transportation (more than 1,000 trucks per day) would have ensured investment in infrastructure development, besides beneficiation and upgradation of low-grade ore.

This has been the case in Australia, Brazil and Chile. So, the government should think of a policy shift to large leases, though it may face opposition.

Such enterprises would have to invest in effective exploration using the latest technology, adopt scientific mine-planning, develop infrastructure and take measures to protect the environment. One obvious way to ensure consolidation of the small mining leases could be by making them tradeable.

Second, India's per capita consumption is less than a tenth of many of its competitors. With progress, the country must go for higher levels of value addition and export. But at every stage, the policy framework must take into account the competitiveness aspect.

One myth that needs to be busted is that mineral resources have enormous value. Japan and South Korea are among the most competitive steel producers but have no indigenous mineral resources. Yet, both nations have systematically leveraged the growth in steel production and global marketing.

This has been possible by an effective leveraging of technology, quality systems and a liberal government policy framework that allowed takeover of mines globally, particularly in Australia, which has a large exportable surplus of coal and iron ore. As part of this strategy is the Korean steel giant POSCO's move to set up a large steel plant in Orissa. Its main aim is to source iron ore at close to actual cost rather than at international prices. Indeed, be it the UK, the US, Germany, or France, all have become developed countries by effectively exploiting their national mineral resources.

Another myth: Steel is an intermediate product — an input for cars and ships. But that would be ignoring steel's primary role in infrastructure — bridges, railways, ports, power plants, and construction. Only after the per capita consumption of steel exceeds, say, 250 kg, as has happened in China, will the nation enter the auto-catalytic stage. This means the economy is on a high-growth path that will catapult it into a developed society.

The iron ore reserve issue. Indian iron ore reserves have not been explored effectively so far; below 150 metres there is no data. How to ensure effective exploration? By fostering large world-class mining complexes, besides providing more financial resources to domestic units.

Large mining leases

The track record of captive mining by steel companies has not so far been exemplary in any country — Russia, Ukraine, Kazakhstan, China or India. Mining has been a back-room function for many large steel enterprises. These enterprises have made no pioneering contribution to any key mining function: Exploration, mine planning, infrastructure development, environ- ment management or restoration.

Yet, such a significant and basic industry as steel, with very large investment and fluctuating returns and crucial to the economic development of a developing nation, cannot but have `input' security. So the answer must be either a combination of partial input security through captive facilities or through combinations of joint ventures and alliances.

Prudent pre-qualifications followed by auctions for large mining leases within a reasonable time-frame could be the appropriate route to triggering higher growth in the steel sector, and thence in the infrastructure and manufacturing sectors — a pre-requisite for a developed and balanced society.

(The author is Director, JSW Steel Ltd. The views are personal and do not reflect those policies of this or the other companies he is associated with.)