Reining in Maoists to woo mining investors

The growing Maoist violence is worrying investors, forcing authorities to fight back aggressively in hopes of luring up to $7 billion in funds needed to boost coal and iron ore output vital for growth.

Maoist violence killed 426 people in the period from January to July, up nearly three times from a year ago, the South Asia Terrorism Portal shows, spotlighting the danger of mining in the mineral-rich eastern and central states and the challenge to the country’s ability to maintain law and order.

The Maoist rebels say they are fighting for the rights of the poor and disenfranchised, and find support among millions of tribal and lower caste people, who accuse the state and big firms of neglect and exploitation in regions rich in minerals.

“If this issue is resolved, first of all logistics will improve significantly because trying to transport material has become a big problem,” said Prasad Baji, senior vice-president at Edelweiss Securities in Mumbai. “Mining operations and production will also improve.”

Analysts say India must attract $7 billion (Rs 32,316 crore) in funds by 2013 to develop an additional 100 million tonnes of coal and 50 million tonnes of iron ore to meet estimated demand and maintain economic growth of more than 6% over the last two years.

India has reserves of 267 billion tonnes of coal and about 25 billion tonnes of iron ore.                                           

But investors can only be won over by a concerted effort to crush the Maoist threat and speed reform, the government’s twin aims in overhauling a law more than 50 years old that regulates the mining industry.

The changes would affect domestic metal and mining firms such as Sesa Goa, Sterlite Industries, Tata Steel and the Steel Authority of India, and global giants Rio Tinto and BHP Billiton.

Several federal ministries are weighing the new bill’s proposals for companies to share more than a quarter of their profit or equity with locals, for foreign investor participation in joint ventures and wide federal powers to tackle lawlessness.

The legal overhaul is part of government moves to expand social programmes for the poor, simultaneously pleasing its core supporters among voters, blocking flows of new recruits to the Maoists and balancing modern lifestyles against traditional ways.

Several government panels will debate the bill, revising it, and perhaps watering down the 26% profit-sharing figure, before it goes to parliament early next year prior to becoming law, analysts say.

Containing the Maoists, who were spawned by a peasant revolt in eastern India in 1967, is one of the biggest challenges the government faces and there is no guarantee fresh investments in mining will pay off, many analysts and industry figures agree.

“The eradication of Maoists may take at least two years,” said Baji, adding that the well-armed groups were entrenched in forested and hilly terrain, enjoyed the support of locals, and had gained strength over many years.

The security forces fanned out against the rebels in March in their biggest deployment in post-independence history, but the army is not being used for fear of alienating locals, leaving ill-trained police forces to fight a guerrilla war.

The government also plans to set up a unified command to coordinate the security offensive against the Maoists and spend more than Rs 950 crore to build roads and bridges in strife-torn areas.

But the payoff for the government could be a while in coming.
“Who will go to these areas to work? There is no development, no law and order,” said S. B. S. Chauhan, an advisor at the Federation of Indian Mineral Industries (FIMI) in New Delhi, which groups 400 metal and mining firms.

Slow development of new mines could see coal imports swell nearly 47% over the next two years and iron ore supplies fall short of big steel capacities on the drawing board. India imported about 68 million tones of coal in the year to March 2010, on top of output of 531 million tonnes. Analysts expect coal imports to exceed 100 million by March 2012.

Iron ore production of 226 million tonnes in the year to March 2010 sufficed for domestic use and exports, but more high-grade ores are needed for major steel capacity growth, to the tune of 120 million tonnes, by March 2012.

Annual output at the largest iron ore miner, NMDC Ltd fell nearly 16% in the year to March 2010 after Maoists cut a slurry pipeline in Chhattisgarh, the worst hit by the revolt.