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On a long road to recovery

Vishwanath Kulkarni | Updated on January 24, 2018

MINING

Different times During its heyday. illegal mining brought migrant labourers to Ballari. Not anymore. K MURALI KUMAR

Mining chart

The Supreme Court’s intervention has changed the ground rules of iron ore mining in Karnataka. But will the sector’s new-found discipline last? Vishwanath Kulkarni reports

As we drive towards the hotbed of mining in Karnataka on the Hospet-Sandur road, driver S Babu talks about the change in the region’s landscape. “During the height of mining boon iron ore lumps from even these fields were extracted,” he says, pointing to the banana plantations, and maize and cotton fields.

During the heyday of mining, when extracting the ore from the land was more lucrative than tilling it, these fields had turned into a dumping ground. But now, crops are being grown here. “The landscape is looking greener now with lush banana plantations,” says Babu who had migrated from the neighbouring Andhra Pradesh to Ballari to become a truckdriver in one of the mines. But when the Supreme Court banned mining in Karnataka and Goa in 2011 after illegal miners went unchecked, Babu lost his job. He was lucky enough to become a taxi driver in Hospet, the town next to the UNESCO-recognised tourist site -- Hampi.

Much water has flown in Narihalla, the main rivulet of these ranges, since the Apex Court lifted the ban, first partially, in 2012. As the Court took steps to curb the illegal mining, a cross section of people with whom BusinessLine interacted agrees that the intervention has brought a sense of discipline into the sector.

The change is evident. Even as mining goes on in the higher reaches of the Ramandurga and Donimalai hill ranges, white stretches of retaining walls, which curb the flow of silt during rains, reflect that change. The miners were mandated to build the walls under the Rehabilitation and Resettlement (R&R) plans as directed by the Supreme Court.

With the new-found discipline, residents of Sandur can now afford to heave a sigh of relief, that too in cleaner air. "The air is bit cleaner now as the dust has come down with reduced mining. Traffic jams caused by iron ore-loaded trucks, a regular feature earlier, has reduced significantly. The blasting (of hills to extract the ore) and pollution of water bodies have also come down," says TM Shiva Kumar, a resident of Sandur and an activist of the Jana Sangram Parishad, which had rallied against illegal mining.

These changes point to a significant shift in ground conditions here. Since 2000, the increasing demand for iron ore, largely because of Chinese steel mills, had attracted new players, many of whom were looking to mine riches by short-cutting sustainable methods. Many of the miners had political clout and some even turned politicians. There was significant damage to the environment of this resource-rich region.

New law to clean mining

Agencies such as the Central Bureau of Investigation (CBI) and the Special Investigation Team continue to probe irregularities committed in mining and exports, largely by politicians and those having nexus with the political class. In mid-July, Congress MLA from Ballari Anil Lad, who was accused of illegally exporting iron ore from the Belikeri Port, was the latest politician to be arrested by the CBI in the mining scam. The former Karnataka minister and mining baron, Gali Janardhan Reddy, the second of the triumvirate Reddy brothers, was jailed four years ago and is now out on bail since early this year.

"The process of mining should be like milking a cow. But these people have cut the udder itself," says Mulimani Iranna, a farmer from Lakshmipur village near Sandur. Farm labourers who had shunned the fields for a job in the mining sector are now slowly coming back to the villages, he adds.

"The sector is largely streamlined now," says Rahul Baldota, Joint Managing Director of MSPL Ltd, a merchant mining company in Hospet. The miners have to contend with a changing market and a new regulation that has introduced the concept of auction of mineral resources such as iron ore, bauxite, limestone and manganese.

The Mines and Minerals (Development and Regulation) Act 2015 enacted by the Parliament early this year has put an end to an almost 60-year-old system of allocating mining leases on a ‘first-come-first-serve’ basis. A new set of players, mainly the end consumers such as the steel makers, will enter the mining sector and may weed out some existing ones. Moreover, the auction of mines is set to bring in competitive bidding, ensuring transparency.

As part of the new regulation, merchant mining companies will lose their leases on March 31, 2020, after which the mines will be auctioned. Those who have captive mines, the last renewal has been extended up to March 31, 2030. As a result, a miner operating a particular lease is not sure of retaining it beyond 2020 unless he goes all out and makes a competitive bid to retain it.

The local miners are also worried by the recent trend of iron ore prices that has become bearish in the last year, on the decline in demand from China. Currently, iron ore prices hover around the $45 per ton-mark, much below the peaks of over $200 per ton that it hit during the commodity boom.

"The mining sector is facing uncertain times. This uncertainty is going to remain in the medium term," says Basant Poddar, Chairman of Mineral Enterprises Ltd, a Bengaluru-headquartered iron ore mining firm with mines in Chitradurga and Ballari.

Poddar, who is also the Vice President of the Federation of Indian Mineral Industries (FIMI), the apex body of miners, says the introduction of competitive bidding for iron ore leases will affect small and marginal players the most. The mid-size and big merchant mining companies may survive because of their deeper pockets.

Steel makers such as JSW Steel, Kalyani Steel and Kirloskar Ferrous Industries, who operate in the region, can now secure their raw material linkages by bidding for iron ore mines when they are auctioned by the government. M V S Seshagiri Rao, Joint Managing Director of JSW Steel Ltd says the company would bid for the mines. The Sajjan Jindal-owned JSW Steel operates a 10 million tonne-per-annum unit at Toranagallu, near Ballari.The facility, which is the largest steel making unit at a single location in the country, requires close to 15 million tonnes of iron ore every year.

Size matters as conditions change

Mining resumed in Karnataka in July 2012after the Apex Court lifted the year-old ban and capped the annual mining limit at 30 million tonnes, based on the carrying capacity of the mines. Earlier, production was around 40 million tons per year. The Supreme Court appointed Central Empowered Committee (CEC), which classified the leases into three categories - A, B and C - based on the extent of illegalities.

The mines in which there were minimal or least irregularities were categorised as A and those with the maximum, were put in category C. Of the 166 iron ore leases in Karnataka, only 46 were classified under Category A, 76 were categorised under B and 51 leases were bracketed under the category C. While mining has started in A and B mines, leases of category C mines have been cancelled.

The Court had mandated the miners to first implement the R&R plan to protect the environment and the local people from the harmful impact of the mining. State officials say 94 of the 108 mines in A&B categories have taken up the R&R work. A monitoring committee of the CEC is overlooking the implementation of the R&R plans that entail creation of adequate infrastructure such as retaining walls, building drains and check dams to handle the wastes from mining and creating a green cover through forestation.

A few of the small miners are sceptical about implementing the R&R plans, deterred by the huge expenditure. "The minimum cost of implementing a R&R plan runs into several crores of rupees," says a fifth-generation miner in Ballari on conditions of anonymity. MEL's Poddar says his firm spent ₹25 crore to complete R&R at mining sites in Tumkur and Chitradurga.

Also, the government has pegged the extraction capacity of the mine owned by the fifth-generation miner, at one-sixth of its earlier capacity of 5-10 lakh tonnes per year. "Unless they enhance my capacity, it would be very difficult to implement the R&R plan. Whatever I am earning now is just enough to pay the salaries of my employees," says the miner. He adds that ‘genuine’ miners were facing problems in implementing the R&R plans. "It is not always feasible to make 100 per cent implementation. The government should enhance the mining capacity of the operating mines," he says.

FIMI in a recent plea to the Supreme Court has sought a lift in the production cieling, as majority of the mines are unlikely to start operations due to low capacity. Moreover, several of the leases are set to expire. Owners of about 12 mining leases have not approached the Indian Council of Forestry Research and Education for preparation of R&R plans as the smaller size of their leases do not justify the expenditure.

A septuagenarian owner of one such mine said its lease had expired in 2000 and has been handed over to the Government. "Most of these leases are small in size. Even if they invest, they don't see the mines generating adequate returns over the next five years as capacity for extraction has been fixed. Also, after investing in R&R, the miners have to seek other statutory clearances for commencing operations," says Poddar. The government could possibly club such small leases and put them for auction.

A few of the small miners have also been levied penalties by the CEC for alleged violation. A miner from the region who didnt want to reveal his identity, has been slapped with a fine of ₹10 crore for alleged encroachment. But he vehemently denies the charges.

"We have carried out the R&R and have secured all statutory clearances, but don't have the money to pay the penalty and start mining. The Supreme Court should show some leniency and allow us to pay penalty from the proceeds of future production," he says.

Auctions, the way forward

With the success of the coal mine auction, from which the government raised over ₹2 lakh crore, there is now consensus that the same method could be used for allotting iron ore mines. Rating agency ICRA in a recent note on steel sector said it expects auctions to bring in greater transparency in the mineral allocation process.

"Since the iron ore mining industry in India has suffered considerably in the last three to four years for various compliance and regulatory issues, a rule based system is likely to mitigate such risks going forward," ICRA said. The Centre, which has already notified the mineral auction rules, has sounded out the mineral rich States to expedite the auction, which could commence in the current financial year.

At a recent meeting with the mining firms and other stake holders, Karnataka Chief Minister Siddaramaiah, who also handles the mines portfolio, said that the State was awaiting Supreme Court's approval to auction 15 more iron ore mines that were classified under category C. So far, Mineral Exploration Corporation Ltd (MECL) has prepared reports for 11 of the 15 mines. MECL has estimated the iron ore reserves in these 11 mines at 176.6 million tonnes. After the completion of the auction of the first set of mines, another 15 will be taken up for auction in the second phase.

Tough times for some

The shortage of iron ore in the state has also severely impacted the sponge iron units. Sponge iron is a substitute for scrap and is used as a raw material for making secondary steel.

The sponge industry in Karnataka that grew in tandem with the rise in mining sector is on the verge of collapse. Of the 66 plants that have come up in Karnataka, 41 have shut down for lack of raw material. The rest of the plants are operating at less than 50 per cent of their capacity. It is estimated that the sponge iron makers require about 9 million tonnes of iron ore and 4.5 million tonnes of coal every year.

"We are finding it difficult to compete in e-auctions and source the raw material. The sponge iron units should be allocated separate mines," says T Srinivasa Rao, President of Karnataka Sponge Iron Manufacturers Association. Rao, who owns two units that have become non-performing assets, stresses on the need to waive interest payments or re-schedule loans. Unlike the big steel makers that use iron ore fines as raw material, the sponge iron makers rely on the lumps that were directly sourced from the miners before the crackdown.

The crack down on mining and the shut down of the sponge iron sector have impacted the region’s real estate and hospitality industries. Most of the migrant labour has gone back. A few of them have been absorbed in the steel making units.

In Hospet and Ballari, the real estate sector has crashed. Most of the helicopters that once dotted the skylines of the region are now either grounded or leased out. In the heyday, the region was abuzz with opening of new retail outlets and car showrooms.

But things are now changing. "Even finding a housemaid was difficult during the boom time as they charged three to four times of the normal salary, but now things are normal," says Latha, a housewife in Hospet.

But some still fear that the return of the infamous mining days. “There will be no relief from mining. The auction of category C mines or new mines could fuel yet another boom,” says Shiva Kumar, the Sandur resident.

Published on July 20, 2015

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