Face of iron ore mining set to change forever with stricter rules, greater transparency

By Megha Mandavia, ET Bureau | 25 Dec, 2014, 04.00AM IST

Twenty-seven year old Rajesh Sulebhavikar, hailing from the mining belt of North Goa, is still struggling to cope with the professional and personal void created by the September 2012 mining ban in the state. On the professional front, his income selling fruits and vegetables is now only a small fraction of the Rs 18,000 a month he was earning before the ban, renting his tipper truck to Sesa Sterlite. Savings have dried up and his father’s meagre pension of Rs 1,300 is hardly enough to pay interest on a gold loan. On the personal front, without adequate earnings, he is struggling to get married. The despair and gloom in his voice as he awaits iron ore mining to restart in Goa is all too evident.

About 1.5 lakh people like Rajesh are struggling to find alternate livelihoods after the Supreme Court banned iron ore mining in the state in the wake of the MB Shah Commission unearthing large scale illegality.

Goa’s economic growth fell to 8.5% in 2013 from 22% a year earlier. The state lost Rs 1,200 crore in annual royalty and taxes from miners.

But even as miners wait for mining leases to be renewed, global prices as well as the domestic regulatory environment has completely changed, altering the face of once robust and highly controversial iron mining in Goa.

Iron ore prices, before the 2012 ban, were hovering around the $100 per tonne range. But over the two-year wait since, prices have declined to $40. When mining resumes, it won’t be as profitable as before.

“The days of large margins for iron ore miners are long gone,” Sesa Sterlite CEO Tom Albanese told ET.

And when mining does resume, it will remain under the Supreme Court’s temporary cap of 20 million tonnes of ore annually. This will be less than half of what was produced earlier. Anything more will require better infrastructure by the government to bring down the road congestion and dust pollution iron ore mining had caused earlier.

“We will have lower levels of production. This will effectively increase overall cost per tonne. That in combination with royalties at state and federal level and export duty would make mining to be not too attractive,” adds Albanese.

According to Sesa Sterlite, the only way to survive in the high cost, low price scenario is to cut costs by changing the way mining was done earlier. “The industry will have to go for larger roads, large capacity trucks and these trucks will need to get 24 hour work.

A lot of re-engineering is required not just by service providers but by mining companies and the government. The cost has to come down, otherwise the industry is gone,” says Aniruddha Joshi, Sesa Sterlite’s vice president, corporate affairs.

Plying of mining trucks is currently permitted for only 12 hours a day. Like Sesa Sterlite, other miners in the state are not optimistic about the prospects of mining as and when it restarts.

They too agree that to make money — after paying export duty of 30%, royalty of 15% and 10% for the Goa fund — is going to be a challenge.

I am convinced that mining if and when it does start will be very hard from the compliance stand point. Fixed costs are going to increase,” says Ambar Timblo, managing director at Fomento Resources. “Companies will have to work closer with one another to share economies of scale and investment in infrastructure. This will be the need of the hour just to survive. Consolidation will be through cooperation in common infrastructure and logistics.”and logistics.”

Goa's Ghost Mines: Face of iron ore mining set to change forever with stricter rules, greater transparency

But before mining begins in another six months to one year, many clearances have to be sought, according to industry sources. Clearances have to come from the ministry of environment and forests, Indian Bureau of Mines and the Pollution Control Board. Goa is also simultaneously looking into violations, outlined in the Shah Commission report. Mining is expected to be much cleaner and controlled versus the earlier unaccounted process.

The state government has computerised the monitoring mechanism to keep illegal mining in check. All trucks and barges carrying iron ore have been fixed with a vehicle tracking system to detect movement. The royalty mechanism has been linked to environment clearance limits of ore mining to keep excessive mining in check.

“In the past two-and-a-half years we have laid down the policy and comprehensive rules pertaining to storage and transportation of ore. We have done away with traders who were indulging in major illegality,” says Prasanna Acharya, director of mines and geology in Goa. “It will be a completely regulated industry and every tonne of ore will be accounted for. We will be able to trace movement of every truck. Even overspeeding will be seen.”

Even as the state moves to clean up mining and tax and regulate it better, the fate of 1.5 lakh people directly or indirectly employed is still not clear.

Sesa Sterlite, with more than 3,000 permanent staff on its payroll in Goa, wanted to pay some employees only 50% of wages till mining resumed. The proposal was rejected by the labour ministry.

So far, despite the mining ban, since September 2012, many of the mining companies including ours have been paying full wages including bonuses to our permanent staff and 50% of wages to contract staff,” says Shivanand Salgaocar, managing director at VM Salgaocar & Bro. “Going forward, one will have to take a call depending on the market situation and the government’s levies and taxes.”

Many of the 1.5 lakh people have started moving back toagriculture even though farms in the mining belt are filled with mining silt. Others are taking up odd jobs like painting, driving for tourists, and so on.

“We are concerned about retrenchment. The threat of layoffs has not gone yet. We don’t have a backup plan. We are living on hope that mining will resume soon,” says Suhas Naik, convenor, Goa Mining People’s Front.

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