India: NMDC to resume iron ore mining at Donimalai at a cost
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NMDC, India's largest iron ore producer, can restart the 7mnt capacity Donimalai mine with the Central government's official stamp of approval to a temporary levy or 'premium' of 22.5 per cent of an average sale price.
With an order dated 29 Nov'20, that SteelMint has reviewed, the Ministry of Mines approved this additional premium using its powers to authorise terms different from the established rules and keeping in mind the current "shortage of iron ore".
This effectively ends the two-year standoff between Karnataka and Centre but comes as a clear warning that mining for NMDC and other central government PSUs will henceforth be more costly.
MMDR 2015 unequal regimes
India is transitioning to an auction regime under which states - recognised under the Constitution as owners of minerals within their borders -- earn an additional revenue in the form of a premium bid as a percentage of the average sale value in the state. Karnataka was the first to see this significant additional revenue.
Mines allocated before the 2015 amendment do not pay any premium. Neither is there any provision in the act to impose premiums on (out of auction) grants to PSUs.
Karnataka had refused to allow a 20-year extension of the Donimalai lease- granted to the Steel Ministry PSU and then withdrawn in Nov of 2018 - unless it was compensated for what it could have earned from auctioning it.
A compromise had finally been reached after Union Mines Minister, Pralhad Joshi (Kannadiga himself) flew down a senior team of steel and mines to Bangaluru in August.
New terms for NMDC
The Centre would review Government Companies Rules 2015 and set up a committee that would decide what premium PSUs must pay for future grants. Until then, NMDC would be allowed to resume mining at Donimalai, paying the state an interim premium of 22.5 percent of the IBM determined average sale price of Karnataka ores.
On 19 September 2020, the state granted NMDC approval on these terms. Since then letters have been exchanged between state, Steel Ministry and Ministry of Mines ending with this specific order issued on Sunday.
It claims the move would also "address the impending shortage arising due to non-operationalisation of several auction mines in Odisha and help in stabilising iron ore prices".
The government miner's supply is critical to India's steel industry. SteelMint expects its next revision due this week to be upwards.
Consequence
Industry experts expect a demand for a similar additional premium by other states such as Indian National Congress-led Chhattisgarh where NMDC produces 25 mn t annually. In the recent past, the Chhattisgarh government has flexed its muscles halting Bailadila more than once while pointing out how generously it had acted by renewing NMDC's mines compared to BJP-ruled Karnataka. NMDC is hoping to develop new iron ore deposits in partnership with the Chhattisgarh Mineral Development Corporation.
Joshi's compromise solution could also affect the Steel Authority of India when it seeks a renewal of its iron ore leases from Hemant Soren's government in Jharkhand. Soren, one may recall, has moved the Supreme court against the Centre's move to auction new coal blocks including some in his home state.
