Mining Mess: Open letter to Manmohan Singh

To
The Hon’ble Prime Minister of India,
Govt of India,
South Block,
New Delhi
6th August 2010

Re: Nationalisation/Resumption of Iron Ore Mining valued at over Two Trillion Dollars

Dear Hon’ble  Prime Minister,

I write as a citizen, one among the 125 crores, for whose beneficiary interest you are the trustee in chief, for the minerals resources in general and iron resources in particular.

That these resources are covered by the doctrine of public trust has been clarified by the Supreme Court in RNRL vs RIL and others, (better known as Anil Ambani vs Mukesh Ambani). The court held:

“Our legal system-based on English Common Law includes the public trust doctrine as part of its jurisprudence. The State is the trustee of all natural resources which are by nature meant for public use and enjoyment. Public at large is beneficiary of the seashore, running waters, airs, forests and ecologically fragile lands. The State as a trustee is under a legal duty to protect the natural resources. These resources meant for public use cannot be converted into private ownership. This doctrine is part of Indian law and finds application in the present case as well. It is thus the duty of the Government to provide complete protection to the natural resources as a trustee of the people at large.”

It would therefore not be wrong to conclude that the doctrine of public trust extended to natural gas also covers another natural resource – iron ore – a resource that India is richly endowed with and probably is the single largest source of mineral wealth.

The Supreme Court further held that it would be ideal for the PSU to handle such projects exclusively. In the words of the Supreme Court:

“It is relevant to note that the Constitution envisages exploration, extraction and supply of gas to be within the domain of governmental functions. It is the duty of the Union to make sure that these resources are used for the benefit of the citizens of this country. Due to shortage of funds and technical know-how, the Government has privatized such activities through the mechanism provided under the PSC. It would have been ideal for the PSUs to handle such projects exclusively.”

From the foregoing it would not be wrong to conclude that the natural resource iron ore is covered by the doctrine of public trust, that the ownership control and distribution of the iron ore should be done in a manner so as to best subserve the common good — Article 39(b) — and that it would be ideal for the PSU to handle such projects – exploitation of the resources exclusively by the State.

The reason for privatizing oil industry, as stated by the Hon’ble Court, was shortage of funds and technology know-how.

Neither of these reasons are applicable to iron ore.

The PSU engaged in exploiting iron ore is the sixty year old NMDC.  It is 90% government owned. Its operating profit margin for the last three years has been 78%, 78% and 80.5% (after treating royalty payment of 5% of turnover as  expenses for the year 2009-10). It has no debt and has not paid a rupee as interest in the last eight years. It has reserves of over Rs 14,000 crores. Its one rupee share was recently subscribed for Rs 300 when the government diluted its stake from 98% to 90%. It neither needs money from the government nor the bank to make fresh investments, and is financially and technologically capable of mining the entire iron ore of the country, In other words, it fully meets the mandate of the Constitution and the Supreme Court judgment, in the above mentioned case, to exploit the natural mineral resource of iron ore for the benefit of the people of the country.

It is ironic that while iron ore worth Rs 100 crores is being pilfered and looted by private interests each day in a cosy crony capitalistic relationship, NMDC is looking for fresh investment for iron ore in Australia! Add to that the proposed allotment of iron ore to private barons worth trillion of dollars for petty royalty and not to NMDC, the tragedy of a poor nation suffering at the hands of corrupt politicians is complete.

Unlike private miners, NMDC does not indulge in slaughter mining. It has the best equipment and their method of exploiting of the minerals are not only better than any private miners but better than that of the captive mines of SAIL and Tisco.

Both the conditions for privatization applicable to the gas sector, as stated in the Supreme Court judgment, is not applicable in case of iron ore

There is no other company in the entire private sector which has a higher operating profit margin than NMDC. It is also among the top ten companies in terms of market capitalization.

In contrast, the private sector companies engaged in mining of iron ore are over mining, under invoicing the price, mining without license or mining plan, under reporting their turnover, paying a small fraction as  taxes or royalties (1.5%), generating large amounts of profits in cash for payoffs to various interests.

The annual loot from iron ore by private miners is around Rs 50,000 crores and involves around 150 families in a relationship which can be best described as crony capitalism. If their balance sheet is made public – which it should as they are dealing with property belonging to the people – it will show that their profitability ratios and efficiency is one-fourth that of NMDC. More important, almost all the profit goes to the private miners. The amount of profits on account of illegal mining runs into tens of thousand crores each year.

For every Rs 100 that NMDC earns, Rs 90 belongs to the government while for every Rs 100 that the private miners earn less than Rs 5 comes to the government as royalty and tax.

The illegal profits of the mining industry has been used to purchase political power either by the miner barons themselves or by the politicians who allot the mines. Every state is heavily into illegal mining and most of them have non-Congress governments.

The sterling record of NMDC, the 60 year old PSU engaged in the mining of iron ore, is being contrasted with that of the private sector to show that there is no justification for the government, which is a trustee of the mineral wealth, not to nationalise (in fact the mines are owned by the government and therefore technically cannot be nationalised)/takeover the iron mines leased to the private barons  and earn thousand of crores for the benefit of the people of the country on whose behalf the mines are held in trust by you as the Prime Minister of the country.

It cannot be the case of the government or the private sector that the best of the companies in the public sector cannot be better than the worst of the companies of the private sector and there must be privatisation of national mineral resources belonging to the people of the country because the government should not be in the business of business, especially if it is a profitable business and the profits are used for the benefit of the people.

Let FICCI, CII, ASSOCHAM, and more important Federation of Indian Minerals Association (FIMI) — who have hundreds of crores to lobby for policies in their favour — show to the people of the country as to how the private miners match upto even 30% the performance of the NMDC in terms of profitability, price realization, royalty payment and income tax payment. This also includes private steel mills who have been allotted captive mines.

The reason for addressing the issue of nationalisation of the iron ore mines urgently is attempt  made by the BJP government in Karnataka (a government by, of, and for the mining lobby) to appropriate the entire iron ore wealth of the State to private interests in perpetuity.

The Government of Karnataka has signed MoU with various companies (ArcelorMittal, Posco, Brahamani Industries, Hazira Steel, JSW Steel, Bhushan Steel) for setting up steel plants of 6 million tonnes capacity each at the Global Investors meet on June 4 and June 5 this year. In addition to the MoUs, other applications for manufacture of steel pending with the government would take the total capacity to be set up in the State to over 60 million tonnes.

The proposed production signed by GOK in a few months is in excess of the total existing steel capacity set up in the country in the last hundred years starting from the first steel plant of Tisco set up  in 1907.

The reasons for the iron rush of the State (which surpasses the gold rush) is two-fold: all the profit of iron ore of the State goes to private coffers and not to the people, and to pre-empt policy and the provisions of the new law relating to the allotment of the iron ore. The iron ore lobby knows that the loot cannot continue indefinitely and it cannot suppress its production and profits indefinitely. The only way to retain their stand alone mines in the future is to make them as suppliers to the integrated steel plants. Hence the brilliant scheme to assure the steel barons of fifty percent iron ore from captive mines on payment of token royalty of 1.5% and fifty percent from privately leased. It is a win-win situation for everybody. Steel producers get 50% raw material for free and the standalone mine owners get to keep their mines and profits.

Why the hurry? It is because the new MMRD Act, to be taken up by Parliament in the current session, compels competitive bidding but exempts existing applicants from the provisions of competitive bidding. Hence, the need to pre-empt the operation of the law.

Sixty million tonnes of steel capacity will require 3000 million tonnes of iron ore valued at Rs 15 lakh crores at current international prices. The benefit of the iron ore will go to the steel producers and the private miners and the true owners of the mine – the people – will have to make do with the pittance of royalty of 1.5%.

These resources are of the value of over Rs 15 lakh crores at current prices and belong to the people of the country and cannot be made over to the likes of Mittals,  Posco etc on payment of 1.5% of market value as royalty. It will be a total betrayal of public trust mentioned in the above mentioned judgment of the Supreme Court.

It cannot be the case of liberalization that when people buy steel capitalistic principles are applied and they are made to pay international price, but when the capitalist requires raw material socialistic principles are applied and they are given the iron ore for almost free.

It is pertinent to note that no steel producers — except TISCO, SAIL, JSPL, JSW Steel (in part through MML, a PSU) have captive mines and the rest of the producers purchase their iron ore from NMDC and some of the private mine holders. The NMDC price is 30 to 40% cheaper than international price. In spite of the purchase of iron ore from NMDC, the steel manufacturers make substantial profits because steel price is linked to international price and price has been decontrolled and removed from the list of items on essential commodity list. Essar Steel has steel capacity of over 5 million tonnes, purchases ore from NMDC and makes substantial profit.

If the iron ore is nationalised then the steel production will not suffer on account of paucity of iron ore. It is a bogey that the steel producers, who have signed MOUs with various state governments (Madhu Khoda style), will raise against nationalisation (apart from the usual foreign investment will suffer) because of their MoUs for  captive mines.

There will be no scarcity of iron ore because SAIL and Tata Steel, JSPL and JSW Steel (in part) account for 25 million steel production for which they have captive mines. NMDC’s current capacity of 30 to 35 million tonnes of iron ore  is sufficient to take care of another 20 million tonnes of steel capacity which leaves a deficit of iron ore for around 10 million tonnes. Steel production of six million tonnes is  from scrap, imported and domestic. The balance ore for 5 million tonnes can be easily provided from the mines taken over by the government as these mines produce over 100 million tonnes of iron ore and the balance exported for profits to the government.

On economic consideration alone can make a strong case for nationalisation of the iron ore industry. The legal and the constitutional consideration make it obligatory, more so when you are the chief trustee for the mineral wealth.

However, it is the political consideration which should be of the greatest concern to the Congress government. The BJP has reportedly amassed a war chest of Rs 10,000 crores for the next election through its rule in the mine rich states and proposes to spend Rs 30 crores in each of 300 constituency. For thirty crores, three lac votes can be purchased at the rate of Rs 1000/vote and with 7-8 lakh votes cast per constituency it will be victory for the BJP and curtains for the Congress.

Unfortunately it is the survival of the corruptest (sorry for the word which does not exist in the English dictionary for obvious reason).

The manner in which the valuable mineral resources have been plundered in various states is the greatest economic scandal of India, which includes the period under which it was under colonial rule. British had to conquer country to exploit its mineral resources, the present day robber barons have to merely pay a small bribe to do so (refer Madhu Khoda).

It may be considered inappropriate to point out to the greatest living Indian economist of our times, that the situation in India is no different than that of African nations which are resource rich nations with poor people. Should we then derive satisfaction from the fact that the developmental index for eight of our states – mostly mineral rich states – is worse than the 22 nations of Africa for similar reasons?

I , therefore beseech you to do right by the people and the constitution of the country and takeover all the iron ore mines in the private sector.

If you will not do it, who will?

Like the bank nationalisation, it will be your legacy to the nation for which the coming generation will be grateful.

With sincere regards,

Arun K Agrawal
Bangalore

(Arun Agrawal is the author of the book Reliance: The Real Natwar)