___________

Livemint was mentioning that POSCO is renowned to be socially a very conscious Industrial company. Following are some excerpts:

A mobile health van goes to some villages at least one day a week, young women have trained as beauticians, doctors have flown in from Korea to fix the cleft palates of local children, scholarships for study have been awarded and street lights have been erected.

On an international level, corporate social responsibility (CSR) has been a major focus for Posco, the only major steel company listed in the Dow Jones Sustainability Indexes, which track the performance of leading companies deemed to operate in a socially responsible manner. Its efforts in India coincide with increased attention to the subject.

Perhaps, this could be a pointer for MNCs who want to invest in backward states like Orissa.

Economic Times reports that central government is mulling to share with states the export duty that it levies on export of iron ores. If this happens this will add to the revenue of mineral rich states like Orissa. Following are some excerpts of the above mentioned report.

The Centre may consider sharing a portion of the recently imposed export duty on iron ore with states. The move is aimed at providing additional revenues to mineral-rich states, where royalty rates have remained abysmally low. Resentment expressed by several states over the Centre’s decision to pocket the entire levy on the mineral may also have swayed the Union government.

This year’s Budget has imposed an export duty of Rs 50 per tonne on iron ore fines with less than 62% iron content and Rs 300 for the remaining ore. The Centre expects to collect over Rs 2,000 crore from this duty. Even if half of it is shared, mineral-rich states — including Jharkhand, Chhattisgarh, Orissa and Karnataka — could get over Rs 1,000 crore. This would be four times the Rs 250 crore that states receive annually as royalty on iron ore.

“Minerals belong to the states and there is no reason why the Centre should levy a duty and pocket all its benefits. The idea behind the duty was to create a deterrence for exports. The Centre should either pass on the entire collection from this duty to states or share a substantial portion with them,” a Planning Commission official said.

At earlier meetings on the subject of iron ore exports, a few states raised the issue of sharing the export duty and changing royalty rates on minerals from the present specific duty to ad valorem duty. In fact, the Hoda committee, which framed the new mineral policy, has also recommended that royalty should shift to ad valorem rates benchmarked against Western Austrian levies, which works out to about 7.5% of the per-tonne price of minerals.

Last week transportation of coal from Mahanadi Coalfields Limited came to a grinding halt and NALCO and NTPC Talcher that depend on that coal got into a critical situation. Following are excerpts from a Newkerala news report that mentions why MCL got into that situation.

Sources said the land losers of Zillinda, Kandhal and Solod affected by Ananta and Bhubaneswari mines stopped Ananata, Jagananath and Bhubaneswari open cast mines and close down the concerned project officers’ offices since yesterday demanding the promised job to the oustees by Mahanadi Coalfield Limited (MCL).

The villagers alleged that MCL authorities did not meet their commitments to provide 80 jobs to them till date forcing them to go for strike.

Similarly the land oustees of Kandhal marched to Lingaraj mine linked to NTPC-kaniha yesterday and stopped the output protesting the non-availability of employment to them as promised by Lingaraj authorities.

Coal transportation from Hngula and Balaram mines had been hit for the last four days due to the road blockade by Soloda villagers demanding jobs.

Angul Collector Girish S N said the authorities were monitoring the situation and senior officials dealing with land acquisition and rehabilitation had been rushed to troubled areas to negotiate with the agitating villagers.

Kalinga Times reported on a letter that CM Naveen Patnaik wrote to the PM on this issue. Following are some excerpts:

In a letter to Singh on Monday, the Chief Minister said that MCL should continue supplying coal to National Aluminium Company (NALCO) and National Thermal Power Corporation (NTPC) to help these industries continue uninterrupted power generation.

Blaming the MCL authorities for not extending the rehabilitation and resettlement benefits to the people affected by coal mining, Patnaik said the public sector undertaking should go as per the State’s R&R policy as the Centre was yet to adopt a new policy in this regard.

Extending R&R benefits to the families affected by the operations of MCL will go a long way in improving law and order situation in the region, Patnaik said.

In recent months there have been reports regarding how some R & R issues with respect to Hirakud dam oustees and SAIL Rourkela still remains unresolved after several decades. It seems that many public sector companies with their central government connections are arrogant and have not done R & R properly. As a result people do not trust R & R promises made by anyone (private or public companies) and as a result various projects that could help Orissa get out of the bottom, are getting inordinately delayed.

I came across a 1-page note someone from POSCO-India gave me when I was visiting Bhubaneswar in December 2006-Jan 2007. The 1-page note summarizes a study done by NCAER. The study has also been reported in News media such as Hindu Businessline. (POSCO-India in its web page has additional links.) We will give some excerpts from the Hindu Businessline report.

The 1-page note: POSCO-India’s rs 52,810 Cr investment by 2016 will stimulate Orissa Economy.

• Economic Benefit:
  • Generate Rs 29,760 crores additional annual gross output for Orissa including Rs 12,610 Crore of POSCO-India’s direct gross output.
  • Create excess annual value addition of Rs. 12,100 crores for Orissa which equals 19% of Orissa’s state GDP in 2005-06 (equals 11.5% in 2016-17)
• Employment:
  • Job creation of 870,000 man years, absorbs 88% of state unemployment backlog (i.e., decrease in backlog of employment from 9.9 lakhs in 2005-06 to 1.2 lakhs).
  • 18,000 man years of direct employment in POSCO-India.
• Tax Contribution:
  • POSCO-India annual tax contribution (Rs 2,620 Crores) would be appx. 17.6% of total tax revenue of Govt. of Orissa in 2016-17.
  • POSCO-India SEZ would contribute Rs 174,970 crore tax revenue in next 35 years.
    • Rs 77,870 crores would be to Govt. of Orissa and Rs 97,100 crores to Govt. of India.
    • The differences of tax between SEZ and DTA status is less than 8% for Govt. of Orissa and 5% for Govt. of India.
• Comparison with current Orissa Economy:
  • Orissa in 2003-04:
    • Gross Output: 111,378 crores
    • State GDP: 53,830 crores
    • Employment: 143 lakhs (2001 census)
    • Tax: 8170 crores (2005-06)
  • POSCO-India’s impact:
    • Gross Output: 29,760 crores
    • State GDP: 12,100 crores
    • Employment: 8.7 lakhs
    • Tax: 2620 crores

We now give some excerpts from the Hindu Business line article of January 2007 which partly explains how some of the above numbers were calculated. That article was written by R. Venkatesan who works for NCAER, but the article was his personal view.

The NCAER study broadly used the ADB/World Bank methodology on the social cost-benefit with minor adjustments for the local parameters. Econometric models were used to project border prices for the useful life of the project. The project’s impact from the State economy perspective — in terms of the impact on the State GDP (output multiplier effects) and employment opportunities created within the State (employment multiplier effects) was also assessed.

The output multiplier for iron ore was found to be 1.4 compared to 2.36 for steel. In other words, every Rs 1 lakh worth of output in the iron ore sector would result in Rs 1.4 lakh of output (including the Rs 1 lakh output of iron ore) compared to Rs 2.36 lakh for every Rs 1 lakh output of steel. The employment multipliers for iron ore and steel work out to 0.35 and 0.69 man-years respectively. Therefore, in terms of both output and employment, steel has a larger impact.

These multipliers imply that the Posco project would create an additional employment of 50,000 person years annually for the next 30 years vis-à-vis 870,000 person years in the steel project alternative. In terms of value addition, the iron ore and steel project alternatives would contribute 1.3 per cent and 11.5 per cent to Orissa’s State Gross Domestic Product (or SGDP) by 2016-17 respectively.

An important part of the study was the Least Cost Analysis of technology options in the steel-making, the Finex process that Posco purports to bring and the traditional blast-furnace technology. The Average Incremental Economic Cost was used as the yardstick; this was followed by computing the economic IRR (internal rate of return)
to examine whether the project was economically worthwhile from the national economy point of view.

The EIRR for the Orissa project works out to 16.6 per cent for base case and even in the worst case scenario, the EIRR at 13.9 per cent would remain above the hurdle rate of 12 per cent. The economic impact of the project was estimated at $2.5 billion at the test discount rate of 12 per cent.

The significant feature of the study was the estimation of depletion premium or the opportunity cost for depleteable and non-renewable resource iron ore for reasons cited below:

India’s high-grade ore (+ 65 per cent Fe content — Haematite) reserves, proven and probable, amount to only 0.58 billion tonnes. And even if we were to factor in indicative and inferred reserves (probable/feasible), the total reserves (proven and possibly future potential) would be only 0.92 billion tonnes.

India’s medium-grade ore (+62 per cent Fe to 65 per cent Fe — Haematite) reserves, proven and probable, is only 1.3 billion tonnes. Here too, if we factor in indicative and inferred (probable/feasible and pre-feasibility estimated) reserves, the total reserves (proven and possibly future potential) will be only 2.8 billion tonnes.

Policy Implications

Orissa stands to gain significantly if instead of exporting iron ore it processes it to steel within the State, in terms of both employment generation (17 times), and GDP impact (9 times).

India’s high and medium grade iron ore reserves may not last more than 19 years even if exports of these grades are frozen at the current level or if the targets set out in the draft steel policy are to be met. The economic analysis considered the depletion premium for high and medium grade iron ore. This is the opportunity cost to the national economy of using the depletable resource, which is the average incremental cost of depletion premiums computed year-wise.

Any exporter of iron ore of medium and high grades from the State needs to pay a depletion premium of $27 per tonne. Even this would be a sub-optimal policy from the State’s viewpoint if it can process the medium and high grade ore to steel. No such depletion premium has been applied for coking coal as its price did not exhibit any
trend before the recent steep price hike.

For the eastern States seeking to raise the mineral sector’s share in their GDP, it may be a good idea to set up processing facilities. It would not be advisable to allocate iron ore mines through open bids or accept increased royalty payments, even accounting for the depletion premium, compared to the option of processing iron ore to steel. Future cost-competitiveness and logistical advantage imply that iron ore-rich States can compete with existing over-capacities in the US, Europe and Japan even after factoring in the capital charges for new investments.

Export of iron ore needs to be restricted to grades other than medium and high-grade ore categories; for instance, export of beneficiated ore from Goa using inland waterways logistics advantages could be encouraged. Allowing exports of high grade ore would facilitate export of steel from existing over-capacities in the US, Europe and Japan to East Asia at the expense of future steel exports from new Indian steel capacities which are likely to enjoy cost-competitiveness over existing over-capacities elsewhere.

I am not qualified to judge the above analysis. I would appreciate any comments, analysis, criticisms etc. on the above.

NDTV reports discovery of gas and oil in the Mahanadi river basin. Following is an excerpt from that report.

Oil and Natural Gas Corporation (ONGC) has made five oil and gas finds in eastern offshore and north-east, the most significant being a gas discovery in the Mahanadi basin block where 3-4 Trillion cubic feet of gas reserves have already been established.

“ONGC made second discovery in Mahanadi basin in MN-DWN-98/3 block in east coast of India about 60-km off Paradeep coast in Orissa,” the company said.

The well MDW-4A at a water depth of 1,087 meters produced gas with a high flow potential from a depth of 1,800 meters. The state-run firm has 100 per cent interest in the block it won in first round of New Exploration Licensing Policy.

The company has so far drilled five wells in Mahanadi Basin and made the first discovery in 2006. It, however, did not say the reserve potential in the new discovery.

“This is again a new discovery and potential of the field is being assessed. The flow rate of oil is highest among the discoveries in North-East. Oil is of very good quality sweet crude with API gravity of 33 and pour point 300 degree Celcius,” it said.

The Economic Times reports the allocation of coal blocks in Orissa to various power generation companies across the country. Following is an excerpt from that report.

The Damodar Valley Corporation (DVC) has been allocated Saharpur Jamarpani block having 600 MT reserves in Jharkhand and two blocks in Manoharpur with 531 MT in Orissa for the Orissa Power Generation Company (OPGENCO).

The Naini coal block in Orissa (500 MT) has been allocated to Gujarat Mineral Development Corporation and Pondicherry Industrial Promotion and Development Corporation, the official said.

Moreover, two blocks at Chandipara in Orissa (1,589 MT) has been allocated to Uttar Pradesh Rajya Vidyut Utpadan Nigam Ltd, CMDC and Maharashtra State Power Generation Company, the official said.

He said the Baitarani West block in Orissa (602 MT) has been allocated to GPCL, OHPGCL and KSEB while Mandakini B block also in Orissa (1,200 MT) has been allocated to Tamil Nadu Electricity Board, Assam Mineral Development Corporation, Meghalaya Mineral Development Corporation and Orissa Mining Corporation Ltd.

The above allocation is done by the Coal ministry in Delhi. Although the coal mining will add to Orissa’s revenue through royalty, a big concern is the low rate of royalty fixed by the center which also does not change as often as it should. Some reports on this were published in Financial Express and other papers. Following is Orissa government’s stand on this issue and the issue of compensation on thermal power generation.

Revision of rates of royalty on coal and other Major Minerals on Ad valorem basis.

Orissa is a mineral rich State, but it does not get non-tax revenue in shape of royalty from such major minerals in the State to the desired extent as the rates of royalty are not being revised in time. The 12th Finance Commission have recommended that the rate of royalty should be revised on ad valorem basis. But the Government of India has not yet done it. In the past, the rate of royalty on coal and other minerals was revised on expiry of more than 5 to 7 years though the rule stipulates that there should be revision after expiry of 3 years. The delay in the revision of the rate of royalty in coal and other major minerals has caused a loss of Rs.150.00 crore per annum. The State has suggested royalty on ad valorem basis.

Compensation on Thermal Power Generation.

Orissa has a vast coal deposit. Orissa is a power surplus State and it exports power to other States. Since, electricity duty can be charged on consumption only, the importing state benefits while the exporting state has to bear the negative externality such as environmental degradation due to mining etc. This tantamounts to transfer of resources from the producer state without any compensation for the huge negative externality as well as depletion of its natural resources. If 1000 MW power is generated in Orissa and evacuated, the importing State gets electricity duty to the extent of Rs.100 crores, while the State in which the power is produced does not get anything. This situation has to be altered by either allowing the State to levy duty on generation or else mandate that a percentage of power generated should be given free of cost to the State by the Central Public Sector generating companies as is the case in Hydro Power Generation.

TOI reports that POSCO has become operational with it’s new FINEX technology in a steel plant in South Korea. The same FINEX technology will be used in the Orissa steel plant. This is particularly relevant for high Alumina grade Ores found in Orissa. The new steel plant in South Korea will improve the output of POSCO by 11%.

Other papers which reported the same news were Statesman,Financial Express and Reuters India. Brunei times provides a different analysis to the same story also.

Tahtya reports that Chhatisgarh Futuristic Infrastructure Development Company (CFIDC) has floated a proposal to set up a Gems and Jewellery Special Economic Zone (SEZ) in the state.

The company has come up with a proposal to set up a sector specific G&J SEZ at Bhubaneswar on a land of 150-200 hectare near the air port with an investment of Rs.250-Rs.300 crore.

Samaja also covers in its news.

News reports mention that Oriental Timex has acquired mining rights for decorative stones at village Potteru in Malkangiri district. Following is a quote from one of the reports.

The company acquired the said rights through a prospecting license dated Apr. 13, 2007, executed between the company and deputy director of mines, Koraput Circle Koraput, government of Orissa.

The decorative stone quarry is spread over an area of 10.279 hectares / 25.40 acres. The deposits in this quarry are of black colour granite stone.

The company said is in the process of complying with the terms and conditions of the prospecting lease.

Moneycontrol India reportted the following.

Chinese steel company Baoshan Iron & Steel company or Baosteel is set to invest in a ferro chrome unit in Kalinganagar in Orissa, reports CNBC-TV18.

It futher says, it would be a joint venture with Visa Steel’s who has a 50,000 tpa ferro chrome unit in Kalinganagar to be commissioned in June.

From http://rc.orissa.gov.in/index3.asp?linkid=30&sublinkid=219

PRESS RELEASE DT.28.05.2007(CM ATTENDS CONFRENCE ON POWER SECTOR)

GOVERNMENT OF ORISSA
PRESS RELEASE
New Delhi
May 28, 2007

Shri Naveen Patnaik, Chief Minister, Orissa today attended the Conference of Chief Ministers on Power Sector at Vigyan Bhawan. The meeting, which was chaired by the Prime Minister, broadly focused on accelerated capacity addition in the power sector, efforts to reduce Aggregate Technical & Commercial (AT&C) losses, ensuring greater competition to open access, rural electrification and energy conservation and efficiency.
Addressing the Conference, Shri Patnaik highlighted the fact that Orissa is the first State in the country to have undertaken reforms and restructuring of the power sector. It has nearly 25% of the total coal reserves of the country and has, therefore, a natural advantage for pit-head generation of power. The CM emphasized the point that the existing duty structure, however, does not provide any incentive to the power producing States. He urged upon the Prime Minister to have a legislation enabling the power producing States to levy duty on generation of power and provide the power producing States with concessional power. Further, suitable contributions should be made by Independent Power Producers (IPPs) for mitigating environmental hazards. Capacity addition should also be eco-friendly and aim towards clean and efficient power.

In order to add capacity, the Government of Orissa has entered into MoUs with 13 companies to set up thermal power plants in the State with a total projected capacity of about 17,000 MW. Besides private companies, 5 PSUs of government of Orissa have also drawn up plans
to set up power plants. He urged upon the Centre that coal blocks should be made available to all such power producers in the State.

He informed the House that the Government of Orissa has floated 3 Shell companies to set up mini ultra power projects. They are ready to select partners provided they are allocated coal blocks.

Shri Patnaik stressed that the aggregate technical and commercial losses (AT&C) cannot be reduced to the ideal level of 15% unless substantial investment is made in power infrastructure. He urged upon the Government of India to extend a special package of Rs.2,000 crore on the pattern provided to the State of Bihar for improving the transmission and distribution sectors. He said that it was ironical that the Government of India is talking about reforms in power sector and at the same time denying the legitimate incentive to the only State of the country which has completed the reform process.

CM further mentioned that the present regulatory framework puts a cap of 4 paise per unit for inter-State sale of electricity. The power producing States should be allowed to leverage their natural advantage and no artificial restrictions whatsoever should be imposed for the benefit of more prosperous consuming States. In the name of being consumer friendly, the rate of sale of power should not be such as to demotivate the power producing States.
Shri Patnaik stated that since as many as 50 lac households of Orissa do not have access to electricity, it was logical that the State should receive a substantial allocation of funds from the Rajiv Gandhi Gramin Vidyutikaran Yojana. Further, while States like UP have received Rs.2357 crore, Bihar Rs.852 crore and Uttaranchal Rs.337 crore, Orissa has got only Rs.67 crore under the RGGVY for only two districts out of the total of 30 districts in the State. There has been inordinate delay in implementation of the programme which has necessitated the new initiative of Biju Gram Jyoti Programme in Orissa.
He also stressed upon the fact that the norm of excluding habitations with a population of less than 300 will debar a large number of tribal hamlets from the benefit of RGGVY and requested that this decision may, therefore, be reconsidered and all habitations be covered under the scheme.

Samaja has a beautiful editorial page article by Ramachandra Pattanayak. In it the the author explains that if we continue opposing Posco, Tisco and Mittal what will happen is that steel plants will be made in other states, our mines will be assigned by the central government to these steel plants in other states and we will lose out on many fronts including infrastructure development that comes with steel plants, ancillaries, etc. Similarly, he says it does not make sense that we are so vocal about IIT etc. and yet we oppose Vedanta University.

I agree with the author. The assignment of mines is not fully under state govt. control. We can not sit on requests and delay assigning mines. If we do that currently the central govt. has the right to assign the mines to others. Losing out on the mines, we lose out on the related infrastructure developments such as townships, railways, roads, and to some degree ports. We also lose out on the ancillaries. In this regard one may note cities with big steel plants such as Rourkela or Jamshedpur. They all have lots of ancillary units around that area. So even if the main steel plant does not employ as many people as in the past, there are more opportunities for ancillaries these days as the state is keen on going after auto factories, bicycle factories etc. These ancillaries will hire a lot of people. But, of course, we should not force people out of their land; they should be enticed with good compensation (R&R). On the other hand we need to be very careful and wary of some of the neighboring states who are trying to spread their ideology to our state and in the process trying to steal some of these upcoming developments in Orissa. In this regard it is amazing that politicians and MPs from a neighboring state are able to come to Orissa and say that their party opposes such and such project in Orissa. At the same time the party of these politicians support industry in their state so much that they or their allies have sent in cadres dressed up as policemen to kill and rape people opposed to industrialization in their state. What gull these politicians from the neighboring state have and how stupid we Oriyas are to invite them, give them a platform and listen to them.

Following is a collection of links that I earlier compiled under the heading “Orissa mining and industries.”

• Forcing Orissa and Jharkhand to remain poor
• Ideas for better revenue generation from Orissa’s minreals.
  • Ammending mining laws so as to get a share of profits from companies that mine Orissa’s minerals (“Odisha Mora, Khani Mora” Campaign By Dr. Jatish Mohanty)
    • A blog on this topic
    • Initial news reports: [newindpress:10/23/06],[Hindu:10/24/06]
    • A draft letter to the Prime minister
  • Requiring companies that lease mines to establish plants in Orissa that will use those mined ores. [Current Orissa govt policy]
  • Modifying the mechanism that is used to price iron ore rates. [Current rate for iron ores set by the central govt is often too low and changes ever so little that the mining and steel companies make lots of profit while Orissa gets peanuts.]
• Trying to understand the issue – a work-in-progress document.
• Open letter to the Tata’s (Sept 2, 2006)
  • A response to it by Mr. Dilu Panda (Sept 13, 2006)
  • Exchange with Mr. Dilu Panda during Sept 14-17 2006: He did not quite substantiate his claims. (Oct 22, 2006)
• Preferential grant of mining leases for Iron ore and manganeese: a report from an expert group appointed by the Govt. of India (7MB) (original)
  • Important page numbers: 223
• List of Orissa mining leases upto July 2005
  
• POSCO-Govt of Orissa MOU
• OMC press release on agreement with Vedanta, Oct 19 2004.
• Q & A presented to council of ministers on the agreement with Vedanta, Nov 29 2004.
• A news item on Tata’s mining leases
• A news item from Hindu on iron ore leases (see page 2) (original)
• A news item from Rediff on POSCO
• A news item from NavHindtimes on ore leases
• A news item from Economic Times: Orissa seeks Ad Valorem based royalty on mining.
  • What is Ad Valorem based royalty? What are other kinds of royalty in mining? (local copy)
• A news item from Business standard about Visa Steel and its struggle with Orissa.
• A news item on Jharkhand borrowing Orissa’s policies.
• A research paper on Steel & Orissa in Steelworld.
• Ex-union minister Mr. Srikant Jena’s objections to recent actions of the Orissa government: a debate
  • His letter to the CM
  • August 5-8 exchange of mails: comments and clarifications
  • Aug 16 exchange of mails
• Orissa mining corporation (OMC):
  • Profit-loss during 2001-04
  • Sales during 2001-04
  • 2003-04 Accountant General report on Orissa Mining Corporation (OMC) and its losses (first 21 pages)
• Coal royalty issues
  • Tathya on November 17 2006.

• Hoda committee report, 2006 (summary, pgs1-28 – 2 MB)
• Dang Committee report, 2005 (7 MB)
• Govt. of Orissa Steels & Mines Department
• Orissa Mining Corporation
• Ministry of Mines, India
• Ministry of Steel, India
• National Steel policy 2005
• Ministry of Coal, India
  
• Coal India Limited
• Orissa and Tata Steel
• Tatas: Kalinganagar
• Tatas: Dhamara
• IPICOL projects (money loaned to many metal related companies)
• Orissa Public Sector Undertakings (PSUs)
• Orissa public enterprises status
• Orissa Industrial Policy 2001; ammendment
• Steel & Mines MOUS
• Orissa reference annual 2005
• Orissa government policy documents
• Mines and Communities
• Environment protection group, Orissa