Overly priced Iron ore plots at Paradip port is a cause of worry for Iron ore exporters, who are struggling with low demand in global market.
With a view to boost its revenues, the Paradip Port Trust (PPT) had come up with new set of rules for auction of plots used to store Iron ore inside the port area. As per the rules, the auction price of all the plots would remain uniform as all bidders would have to match the highest price offered by the top bidder. Apart from this the port trust has also enforced some stringent conditions for the bidders.
Miners placed unreasonably high bids
On 24 Jan 2014, PPT floated tenders for total 46 Iron ore plots including 19 plots with mechanical loading facility. The mechanical plots measure 5,000 square meters (sqm) each, while manual plots are of 3,000 sqm size. The base price of manual plots was fixed at INR 9/sqm, while price of mechanical plots was fixed at INR 12/sqm. However, the premium has been kept at INR 525/sqm per month for both categories of plots. The bidder has to quote rates over and above INR 525/sqm.
In spite of low Iron ore demand in the international market, bidders have participated aggressively in the auction due to which the H1 price has gone up to as much as INR 1,371/sqm per month. Thus an exporter has to spend around INR 7 crore for the whole 11 month period, which is a very big amount for the general Iron ore exporters given the reduced profit margin they get after paying 30% export duty and higher railway freight charges. Railway freight rates of Iron ore cargo meant for export is three times more than the domestic freight rate. Earlier, the plots were allotted to traders and miners at fixed costs.
Merchant Exporters under pressure
Exporters like BTM Exports, Jagwani, Kalinga Commercial Corporation, Yazdani, Bonai, Feegrade, RML, RSPL, Kashvi, Liberty Marine, SM Niryat, Bagadiya Brothers, Aliza, KK Resources, Royal Liners, Sri Lakshmi etc have been allotted the mechanical plots in the auction.
According to a port official, there have been negligible Iron ore exports through the port in Q1 FY15 and the exporters holding plots are incurring heavy loss. Meanwhile, despite this the port has already issued notices to the exporters. Also, cancellation of the plots as per the tender conditions, which said that if any party does not make minimum shipment of 19,000 MT within 4 months from the date of issue of allotment order, the plot of the concerned party will be treated as cancelled and dues such as MGT and bid price paid for the year will be forfeited. However, the exporters have requested the port trust to grant few months of grace period keeping in view of the situation prevailing at the mining sector.
So the question arises, why the exporters participated in the bid aggressively even if they were well aware of the current global market scenario and the union government’s policy towards Iron ore exports?
According to a trader & exporter, big miner like Rungta is responsible for the unreasonably high price of the plots. The miner participated in the auction with 4 different names and managed to get 4 plots quoting the H1 prices. As per rules, the other plots were allotted at the H1 price to other participants.
Market participants also mentioned that some exporters have taken loan from the bank and had applied for the plot at port. With slowdown in business, chances of defaulting become very high.
The exporters who are also miners have the advantage that they get Iron ore at the cost of mining, which is sometimes as low as INR100 -200 per/MT. On the other hand, an exporter has to buy the ore from the miners at market price to export. So while miner like Rungta can manage the high price of the plots, the small exporters are bound to earn losses and could not sustain in the competition.
Opposing the new set of rules for auction of plots the trader said, “At a time when the government is discouraging exports how can the PPT demand minimum business within 4 months? This new system favors the big players at the cost of the small traders. How can the same company participate in an auction with 4 different names, whereas the board of directors is the same?”
“As a government owned port, they should give a level playing field for all the players and instead of auctioning plots, they should provide common-use plots to the exporters,” he added.
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