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Adverse Supreme Court ruling on Odisha mining to impact steel industry

Thursday, 1 May 2014 - 8:50am IST | Place: Mumbai | Agency: dna

Miners, steelmakers await SC verdict on Odisha illegal mining

Iron ore miners and local steelmakers are waiting with bated breath for the Supreme Court verdict in the illegal Odisha mining case. The verdict is likely to be delivered on Friday.

On Monday, the apex court while reserving its order on Odisha mining case hinted at a Goa-like mining ban and cancellation of all deemed extension of leases. On April 22, the apex court while lifting the 18-month-long ban on iron ore mining in Goa and capping annual production at 20 million tonne (MT), shocked iron ore miners by stating that all mine leases in Goa expired in 2007 and mining activity carried out post this (second renewal) were to be considered illegal.

Of the 56 operating leases in Odisha, 26 fall under this second renewal category. These 26 leases include six mines of Tata Steel, two of Steel Authority of India, two mines by state-owned Orissa Mining Corporation and one by Aditya Birla Group's Essel Mining.

Rana Som, the former CMD of NMDC, told dna that if the Supreme Court follows the Goa ruling and disallows deemed extension of mining leases for second renewal, operations of several mines across the country would come to standstill and it will have huge impact on iron ore availability, steel production and ore export across the country.

Tracing back the root of the Supreme Court's decision, Som said that Odisha government had first suggested that deemed extension to lease should be provided only once and the second renewal should be given only if mineral development is carried out by the miner. Odisha was the only government that had followed this approach. "But now that the Supreme Court has taken up this approach it will have severe impact on nation's iron ore availability as large number of mines in all states are under operating under second renewal," Som said.

Also, Odisha government had interpreted 'mineral development' as value addition in ore. If the apex court also chooses to have these interpretation it can create havoc for iron ore miners. "It would mean that all miners will have to become steelmaker," he added.

Agreeing to him, Prakash Duvvuri, head of research, OreTeam said that interpretation of 'mineral development' term was crucial as not all miners can set up a pellet facility. "Imagine if all miners will put up pellet plants, there would be oversupply and as such there are not many takers for pellets in India," he adds.

However, these interpretation may save captive miners like Tata Steel and SAIL. It is difficult to imagine how these steel companies will operates if these mine leases are canceled by the government. Around 22 MT of ore could be affected if these leases faces cancellation, Prakash Duvvuri, head of research, OreTeam Research, said. These companies would might then have to depend on market purchase of ore and price fluctuations.

Following denial to second renewal, in Goa, except one lease, all other leases have become invalid and are termed illegal. "All these mines will have to reapply for licences and environmental clearance and hence mining in Goa may only start by January," Prakash Duvvuri, head of research, OreTeam Research, said.

Goa Mineral Ore Exporters' Association executive director S Sridhar said the apex court order was silent on many front and further clarity was required. "Central government must come up with clarification on the act and the rule related to application of lease extension. In this scenario, a lot is left to the state government to decide," he adds. According to news agencies, Goa is all set to formulate a clear-cut iron ore mining policy within two months.

Odisha's mining situation may push up steel and ore prices in near future. "The situation is fairly same for Odisha's ore buyers and no big change is visible in the pattern going ahead. The miners are likely to spice up the prices but ironically the extra-dressing would only impact the local buyers and not the larger ones. The large buyers will be buying at prevailing levels only," Duvvuri said. Currently 16 mines in Odisha have all approvals as per the Centre Appointed Committee and production capacities of these would be nearly 25 million tons.

Ashima Tyagi, a senior consultant with Infraline Research, said that in case of Odisha, a cut-off year like Goa is impossible. "The main contention of mining under the deemed extension clause has been taken up by the state government proactively by introducing requisite guidelines, after the CEC and Shah Commission pointed out the loop-hole in the MC Rules, 1960. The court should hopefully be looking at illegalities or irregularities as well as imposing necessary penalties on a case to case basis, since several reputed miners and steel players have put in order all necessary clearances as per law. In case a blanket ban is imposed with a temporary relief of e-auction, it may still have deleterious effects on the state of the mining and steel industries of the country," she adds.

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