The Odisha government’s proposal to penalise the auctioned mines for their failure to meet MDPA commitments could if actually implemented, bring relief to many steel-makers dependent on Odisha’s iron ore. This may increase iron ore supplies in the state in the coming months.
Many new leaseholders, who had bagged the rights to operate mines in Odisha in Jan’20, had been show-caused in Aug’20 and Sept’20 for not producing ore as per minimum production requirement.
The Directorate of Mines, Odisha government, has now sought departmental approval to slap them with penalties, charged at 24% of average sale price, as published by IBM, on their monthly shortfall in despatch, which is to be appropriated from their respective performance security.
Those who won mining rights through auctions must produce at least 80% of the average production of an iron ore mine in the preceding two years – in the first two years of their operation. The need for such a rule under MDPA (Rule-12A of MCR, 2016) was to ensure no new leaseholder could afford to squat on precious mineral resources after bidding high premiums for mines.
The mineral-bearing state’s earning from mining, in royalty and premium, is a factor of both volumes and the average iron ore prices. The shortfall stemming from a not-so-smooth transition of mining rights in the country’s leading iron ore producing state contributed to prices of the key raw material to rise to record highs.
This has prompted the steel lobby to seek Central government intervention in imposing higher export duty and even a ban on export of ore and pellets in the run up to the next Budget.
The new lessees who bagged rights to high-value working mines have argued that their production shortfall has been due to infrastructural constraints on account of having to operate alongside the old lessees, not to forget the state’s government’s insistence on stacking.
That argument may be hard to accept after 31 Sept’20– the deadline for the old lessees to move out extracted material lying at the mine sites. The deadline had been extended and the matter is still being heard in court.
Some of the new mine owners had also told SteelMint that the MPDA targets were annual. Therefore, shortfalls would be calculated at the end of the year instead of on a monthly basis.
The recent letter, dated 15 Dec’20, from the Director of Mines, Odisha government to the Principal Secretary, Steel & Mines, however, abolishes that view. It proposes to penalise existing lessees by looking at their shortfall against “the targeted monthly despatch calculated on a pro-rata basis”.
There are no allowances to be made for any month in which production may have exceeded minimum despatch, “it will not be adjusted against the other months.”
For those lessees who are operating already “the shortfall will be apportioned grade-wise depending on the grades produced during the month” and for those that haven’t started yet operations, the penalty will be charged on shortfall estimated according to the IBM prices for grades produced by the ex-lessee during the previous year.”
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