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In http://www.orissalinks.com/orissagrowth/archives/1616 we discussed a report regarding auctioning of minerals. The following article in Sambada illusrtates with numbers that the best way to go would be to decide the winner of the auction based on evaluating the financial and technical bid together and determining which one offers the state the maximum revenue. (Later when time permits I will translate the article into English.)

The following excerpts from a news item from tathya.in illustrates the difference between the state’s income due to only royalties and through auction.

In 2002 the IDCOL made an abortive attempt to give away the mines to Jindal Stainless at a throw away considerations ignoring higher bids by Tata Steel and Visa Industries.

The ill-conceived move by the bureaucrats was foiled by the Orissa High Court, which passed adverse comments regarding the Government of Orissa attempt to compromise public interest in the deal.

Both the State Government and IDCOL appealed before the apex court to get relief with considerable cost and time.

Supreme Court’s order for re-bidding how ever has now materialized.

To the amazement of every one Jindal Stainless which had offered a sum of Rs.38 per ton has now come up with a bid of Rs.3000 per ton for ore having 48 per cent chromium.

And on average they have offered per ton Rs.900.

Visa Industries has out bid Jindal Stainless with an offer of Rs.7000 per ton of chrome having 48 per cent of chromium content.

Even assuming the changes in the commodity prices which have taken place in last 5 years is too much than the price offered earlier.

The colossal loss to the flagship Public Sector Undertaking (PSU), IDCOL can be well imagined if the Jindal Stainless had succeeded in 2002.

Now with opening the financial bids of the participants, it underscores the point that the State Government’s Policy for leasing out the mineral resources of the state is faulty and not at all in the best interest of the state, said a financial analyst.

To take the advantage of high price in demand of metals and minerals in the international market, corporate giants and multinationals like POSCO, Arcelor- Mittal, Essar, Vedanta, Jindal, Bhusan and many others are flocking to Orissa to corner mining leases.

The State Government  … Yet they do not learn from the Tangarpada experience.

… Under the MMDR Act, mines can be reserved for the PSUs and leased out to the State owned companies like IDCOL and OMC.

These PSU can auction the mines among the credible parties after floating world tender for value addition and derive bonanza.

Till date no body knows about the “Policy of Value Addition” of the Government of Orissa.

The Policy should come up immediately and it should be implemented in letter and spirit for the interest of the state.

The positive changes of Policy will not effect industrialization, but it will give substantially higher rate of revenue to the state exchequer as demonstrated in case of Tangarpada.

The state’s entire requirement of funds for eradicating poverty and developing the state can be generated with the policy change, said a former Union Minister.

However there is no effort in this direction.

…  Instead of Centre bashing the State Government should make efforts to maximize revenue from mineral resources through PSU mode, observed a former Secretary of the Government of India.

Definitely the state can earn much more on just the minerals by leasing it to state companies like OMC and IDCOL and then letting those companies auction the mineral. The possible negative of completely following that approach, especially with respect to iron ore, is that the winner of the auction can then take the ore and set up plants in other states. If that happens Orissa will lose out on the side developments associated with plants such as infrastructure building, jobs and the tax that the state can get from the companies.

What the state should do is to try for the best of both worlds. I.e., offer other facilities and enticements to keep the companies in the state but go the route of auction. What other facilities and enticements can the state offer?  Orissa being on the coast, availability of ports nearby is an important factor and it is good that the state is working on the development of many ports and railway lines to those ports. Easy availability of land for the companies will help. More thoughts need to be put in this direction.

There is a chance that some companies will not set up shop in Orissa under these conditions; but these days there seems to be a lot of companies who want to set shop. So perhaps the time has come for the state to change its approach of leasing mines to attract companies to auctioning minerals via IDCOL and OMC and using other methods to attract value addition companies.

Following is an excerpt from a report in Hindu. (Thanks to Deba Nayak for the pointer.)

… the poor people of the mineral-rich tribal population dominated district of Keonjhar are gearing up to welcome the Mittals and the tribe.

In a dramatic development, Kendujhar Nagarik Manch, the five-year-old district citizens’ forum, in its meeting on Friday resolved to host a symposium at the district headquarter on the need for industrialisation on December 2 to deliberate its benefits for the people of the district. “About 300 people including politicians, opinion makers, academicians, social activists and media persons would be attending it,” forum secretary Mr.Himansu Kuanr told The Hindu.

Industrialisation “We would welcome industrialisation with value addition,” he stated and added that the steel giants like the Mittal would be using the latest technology that would ensure minimum pollution. Sloppy land would be acquired for setting up of the plants and the packages being offered would also benefit the land losers, he said.

Some political parties are misguiding the people by spreading mis-information on the projects and thereby arresting development of the region through industrialisation, the forum’s spokesperson felt.

Mr.Kuanr further pointed out that in the past four years, minerals worth about Rs.36, 000 crore have been exported from the district without rendering any direct benefit to the people of the district. “As Haryana farmers have been amply benefited by industrialisation in and around Delhi, the farmers of the district would be similarly be benefited from industrialisation,” he reasoned.

Pioneer reports that Ersama MLA and former Minister Damodar Rout on Sunday has initiated a joint political move in favour of the Posco project proposed near Paradip in his constituency.

Excerpts

“Under no particular party’s banner, political leaders met in Jagatsinghpur to chart out a strategy for a show of strength with a slogan Aage maati pare party, literally meaning land first, party later. Presiding over the meeting, Rout harped on the fact that 85 per cent people in Kujang tehsil, where the South Korean steel major wants to set up its greenfield project, were supporting the 12-million-tonne per annum plant. As they are not united, their voice is cowed down by a handful of agitators. Rout sought to prove the point that the anti-Posco brigade was a minority group making tall claims. It was decided to organise a mass meeting on Tuesday at Balitutha, which leaders cutting across party lines would address. Rout’s move follows Chief Minister Naveen Patnaik’s instructions to him to extend his support for the Posco project in his constituency.

Rout, in his turn, has asked the Jagatsinghpur district authorities to help in smooth conduct of the Tuesday meeting, to which Collector Pramod Kumar Mehrada and SP RP Singh have reportedly agreed.

More than 60 representatives from various political parties participated in the deliberations on Sunday. A few of them suggested to organise the mass meeting at a later stage, but Rout said, “Strike the iron when it is hot.”

A section of political observers, however, feels that there may be a scuffle between the anti- and pro-Posco supporters on the day”

Update: Livemint has a more succinct report.

The court suggested that VAL’s holding company, Sterlite Industries (India) Ltd, file an affidavit with three undertakings:

• commit to pay Rs50 crore as a security deposit to the court;
• agree to pay 5% of the net profit accruing from all its mining activities or Rs10 crore, whichever was greater, towards tribal development and environmental safeguards; and
• present a report on employment opportunities that the project would generate.

Following is an excerpt from a Reuter’s report on this.

The Supreme Court set new conditions on Britain’s Vedanta Resources Plc and its Indian unit on Friday before allowing it to mine bauxite in sacred, forested hills in the east of the country.

Vedanta wants to dig open-cast mines in the Niyamgiri hills in Orissa to feed an alumina refinery it has already built in the area, as part of an $800 million project expected initially to produce 1 million tonnes of alumina per year.

At an earlier hearing, Vedanta had promised to invest 1.12 billion rupees ($28.4 million) to develop the poor region, but a three-judge bench said it wanted this commitment to be made by the firm’s Indian unit, Sterlite Industries Ltd.

“What is Vedanta?,” the bench said. “Vedanta is not listed in India. So let Sterlite give an undertaking.”

Thousands of tribal people say the mine will destroy hills they consider sacred, force them from their homes and destroy their livelihoods, which are based on farming millet, hunting and collecting fruits and spices from the forests.

Environmentalists say the open-cast mine would also wreck the rich biodiversity of the remote hills and disrupt key water sources that supply springs and streams in the area and feed two rivers that irrigate large areas of farmland.

The court asked Sterlite to pay five percent of its annual profits from mining throughout India to the state government to be ploughed into developing the region.

It also asked the company to deposit 500 million rupees ($12.7 million) with the state government, and specify how many local people would be employed in the project.

When Sterlite objected to the conditions, the court adjourned the case until the company made a formal response.

The state and central government both back the plan, as part of efforts to industrialise and exploit the mineral resources of underdeveloped eastern India.

The Environment Ministry told the Supreme Court earlier this month that the mining would only affect a marginal amount of forest land.

It also promised “special efforts” would be made to manage and conserve wildlife in the area, which is part of an elephant corridor, shelters leopards and is the only known home in Orissa of the rare golden gecko.

If the state government and central government back this plan then they should require this from all mining companies in India not just Sterlite. It would be an excellent move.

The Hindu reports that environmental clearance has been granted to POSCO steel plant. POSCO has earmarked 1,525 crores for environmental pollution control as per the Ministry of Environment and Forests (MOEF) as well as the state government conditions. Excerpts:

“The Ministry of Environment and Forests has given the environmental clearance for Posco’s mega steel project at Kujang near Paradip in Jagatsinghpur district of Orissa,” highly-placed official sources said.The Korean steel giant had signed a Memorandum of Understanding with the Orissa government in June 2005 pledging an investment of Rs 52,000 crore for setting up the plant.

“The project authorities shall utilise Rs 1,525 crore earmarked for environmental pollution control measures judiciously to implement the conditions stipulated by the Ministry of Environment and Forests (MOEF) as well as the state government. The funds so provided shall not be diverted for any other purpose,” a source quoted the Environment and Forests Ministry as saying, while granting clearance.

The clearance has been granted to the world’s third largest steel manufacturer for installing furnaces using FINEX technology only and on the condition that gaseous emissions from its various units should strictly conform to load/mass based standards notified by the government.

Earlier in April, the MOEF had granted its approval under Coastal Regulation Zone to the Korean steel giant’s proposal to set up a captive port at Jatadhari at a cost of Rs 17,113 crore.”

Market watch reports that POSCO expects to complete land acquisition by year end for it’s Orissa steel plant. Following is an excerpt.

‘Lee also said Posco expects to be able to secure all necessary land for its planned 12 million ton-a-year plant in Orissa, India, by the end of 2007, with construction projected to start in the first half of next year.
Posco is set to invest $12 billion to complete the plant by 2016. Orissa’s state government has so far allocated 1,135 acres of land to Posco, which has requested 4,000 acres. ‘

Other news to be seen is that it has had massive profits due to improved cost-savings from FINEX technology.

The economic times reports that the new mineral policy has been announced. Excerpts are mentioned in another post. Here, we list it’s salient features.

• The GoM has accepted the views of the mining industry while recommending no changes in the guidelines for exports.[This decision supports POSCO’s case for captive mines]
• More powers provided to state government. The state governments will be able to give preference to companies undertaking value addition within the state while allotting iron ore mines. This will reduce standalone mines.
• The policy will provide captive mines to all steel units in operation up to July 2006.[I’m not sure about it’s implications for POSCO]
• The policy will now aim towards procedural simplification for attracting investments in the sector.
• It will also benefit the states as under the new policy, the present system of specific rate royalty will shift to ad valorem rate of 7.5%.[This will have great benefits for Orissa and other mineral rich states]. Once notified, the proposal will increase royalty earnings by almost six times.
• The states sitting over mining applications of companies will be penalised as delays will transfer their powers to the Centre.
• Another important aspect of the new policy is that a process of competitive bidding can be initiated for allocation of captive coal blocks. This is presently done by a screening committee within the coal ministry. The bidding process will also be started for all other major minerals.
• Besides, the government will auction mining areas where full prospecting has to be done.
• Companies will have to earmark 3% of turnover for undertaking rehabilitation and resettlement of displaced people under a sustainable development model. However, the ministry of environment and forests will work out fresh guidelines separately to introduce environment-friendly mining practices in the industry.

The economic times states that mining areas will be auctioned for prospecting but the Telegraph says that Auctions mean global giants such as Posco and ArcelorMittal will not be allowed to negotiate for leases with Jharkhand and Orissa on the basis of plans for units in these states. Of course, this statement is speculative. But the states need to be careful before agreeing to this proposal.

Perhaps, We will have to wait and watch for the final notification on the policy.

Various news reports mention that BHP Biliton’s proposal has been rejected by the Orissa government as it did not have an appropriate value addition component. Following are excerpts from the Financial Express report.

The Orissa government has rejected BHP Billiton’s proposal to set up a 3-million tonne alumina refinery special economic zone (SEZ) in Gopalpur with an investemnt of $3.3 billion (Rs 14,000 crore). …

The government reportedly refused to accept the offer on the ground that the project did not have any proposal for aluminium smelter. The state government, which is insisting on value addition to at least 50% of the alumina in the state as part of its bauxite mineral policy, has asked the company to submit a fresh proposal with facilities for production of aluminium.

BHP Billiton has sought bauxite mines with proven reserve of 300 million tonne and 5500 acre in Gopalpur for the project.