Karnataka Lok Ayukta Report on illegal mining

Karnataka is richly endowed with iron ore and large deposits are found in the districts of Hospet, Bellary, Tumkur and Sandur. Due to low prices of iron ore in both the domestic and international market, a decade back there was not much profit in mining the iron ore.

Mining licenses were given to State owned MML (Mysore Minerals Limited) and private players to mine the ore. MML in turn transferred its mining rights to private mining barons. However, the price of ore which was around Rs 300 per tonne in 2002-03, skyrocketed to over Rs 5000-7000 per tonne in 2005-2006 due to global shortage and  demand.  The entire benefit of higher price went to the private profiteers and not to the State.

The huge profitability in the mining of iron ore since last few years led to growth of a new class of entrepreneurs which indulged in illegal mining without license, mining in reserved forest area, mining far in excess of their licensed capacity.

Karnataka has lost around 10,598 hectares of land to mining and given the scale of depletion of forest cover, the Karnataka Lok Ayukta was given the task to investigate the large-scale illegal mining and transportation of iron ore from forest areas in March 2007. The inquiry was ordered during the coalition government of H D Kumaraswamy-led Janata Dal (Secular) and the BJP.

The Lok Ayukta Report made a comprehensive legal analysis of the illegalities committed and the financial loss incurred to the State. Karnataka Lok Ayukta Justice N Santosh Hegde (former Supreme Court judge) submitted his interim report (covering the period from 2000-2006) in December 2008 to the B S Yeddyurappa government. The second part of the report (covering the period from 2006-2008) is to be submitted soon.

The facts narrated in the report were so damning in nature that the government is reluctant to make the report public. Despite public lamentation by the Karnataka Governor and the Lok Ayukta, there is complete lack of action on the part of the state government. It is not even ready to share the report and the action-taken report (ATR) with the Central Bureau of Investigation team (CBI),  which is probing the illegal mining of iron ore in Andhra Pradesh. The UPA Government has ordered the probe on the request of the Andhra Pradesh Government.

Canary Trap, after speaking  with sources who have access to the report, brings you exclusive details of the report that the Karnataka Government is holding close to its heart.

1. The report uncovered various irregularities and connivance of the decision makers resulting in colossal loss to the State. One of its findings was that while the cost of mining, transportation and royalty was a maximum was Rs 427 per tonne, the sale price was around Rs 5000 to 7000 per tonne which showed the quantum of profits involved in the mining scam .

2. That according to the report, the private profiteers are earning Rs 5000 per tonne while the State is getting a petty royalty of Rs 27 (maximum royalty then, revised to 10% ad valorem recently) per tonne on the iron ore declared by the profiteers. A large amount of ore was illegally mined and transported and therefore not shown in the books and on these the State did not even get the token royalty.

3. The Lok Ayukta report reveals that even when the price of iron ore soared from Rs 300 to Rs 5000-7000, the royalty received by the State continued to be at a maximum of Rs 27.

4. The report is a strong indictment of the politico-bureaucrat decision makers in flouting the law in granting benefits to private interest at a heavy cost to the state. Chapter IX of the report deals with Mysore Mineral Ltd (MML), which had a state monopoly on the lucrative iron ore mines of the State. The report goes on to show:

  • How these mines were leased to the private sector without obtaining permission of the Central government as was required under under Rule 37 of the M.C Rules. The Lok Ayukta in para 7 on page 234 has observed, “The decision taken by the Ministers in the meetings held on 21-03-1994 and in the meeting with the Government of India held on 30-11-2000 to continue forest areas and strategic mineral bearing areas such as iron, manganese, chromite and lime stone (steel grade) as reserved has not been modified subsequently in any meeting.” It therefore appears that all allotment of iron ore to the private sector is illegal as the strategic mineral has never been dereserved.
  • How successive CMDs of the company – eleven in all for the period 2000-2006 – failed to protect the financial interest of MML by deliberately fixing abnormally low prices of iron ore (far below that of MMTC).
  • How the outsourcing was opposed to the object for which MML was established in violation of the Memorandum of Association.

5. The report clearly shows that successive decision makers have not protected the interest of the State in the exploitation of mine and the private profiteers have made unimaginable windfall gains at the expense of the State.

Canary Trap will bring you more details from the interim report in the next post on this issue.