Hectic lobby: Some Steel companies in Odisha including Jindal Steel and Power (JSPL) are doing hectic lobby for the preemption of iron ore to control iron ore market , which will reduce collection of govt revenue and lead to reduction of ASP. Lowering of ASP will further lower GST collection. “ JANMAT” in a petition to Odisha Govt demanded not to invoke pre-emption of ore as there is abundant supply iron ore in Odisha.
JSPL is doing lobby for The current articles on pre-emption of iron ore through various associations citing reasons of shortage of iron ore, inter-state exports, loss in revenue for the State due to underutilization of steel, sponge and pellet plants within the State, GST loss amongst others. The company is circulating misleading information in the State about shortage of iron ore whereas there is sufficient availability of ore in the State. In fact, the Government of Odisha has taken all due steps to maintain production of minerals during Covid pandemic and now, production of minerals is showing positive growth. In first quarter of FY22, iron production in Odisha has witnessed growth of 144% to 42mt compared 17.21mt of the corresponding quarter in the previous year. The average monthly production is about 14mt in FY22 which is 144% higher compared to 6mtpa in FY21.
Here, we would like intimate these are vested and unhealthy industry practice being adopted by Jindal Steel & Power Limited to invoke pre-emption policy for iron ore citing low iron ore availability which is far from reality.
JSPL has its own mine at Tensa Raikela Bandhal iron ore mine of 3.11 MTPA capacity and majority of their material (90%) was coming from Sarda Mines, which is a matter of record. Upto the time the Sarda Mines was operational, there was never a whisper of pre-emption from anywhere in the State as in actual terms there is an excess and no shortage of iron ore. When the mine was about to be closed JSPL was facing the grim reality of buying from the market and wanted the iron ore prices to come down. This could only be achieved if the IBM ASP prices were somehow brought down, which led to the idea of revving a redundant policy of the State of pre-emption. If Sarda Mines gets operational again suddenly all pre-emption demand by purported 18 players of which JSPL is the only integrated steel plant will vanish as SMPL profits also matter to JSPL.
The Steel prices are booming, and so are that for pellets, coupled with the fact that JSPL itself exports Fe 55%-58% material from its Tensa mines. In the current financial year 2022, from April to June 21, about 96% of dispatch of TRB mine was outside State. Out of total dispatch of 5.3 lakh tonne upto June’21, JSPL has exported 3.2 lakh tonne (60% of total dispatch) and inter-state export of 2 lakh tonne (36% of total dispatch) when it has own steel and pellets plant within the State of Odisha. In fact, it is one the biggest exporters of iron ore from Odisha.
It is a drive by the big steel players of the State to bring down average sale prices ofIBM so that input side iron ore prices crash and the company may profiteer. By controlling dispatch of mines, they are interested to fix ex-mines prices as per their demand. All this at the expense of the State exchequer as IBM prices determine the Premium, Royalty, DMF, NMET etc for the State Government.
Existing Pre-Emption Policy of the State of redundant post the New MMDR Act and Mineral Concession Rules, 2016: The Pre-emption Notification No. S.R.O. No.256/2014 dated 26.06.2014 read with the modification S.R.O No.140/2015 dated 16.04.2015 was based on the concept of Fair Market Value as per the MCR 1960 rules. The right to pre- emption were contained in Rule 27(1)(m) read with clause 21(a) of Form-K, the model lease deed. Pre-emption rights have of the State are now contained in Rule 12(1)(i) of MCR 2016 which refers to a different pricing mechanism i.e the IBM prices. Thus, even if the request which is devoid of all merits and completely fabricated to benefit JSPL has to be considered, the Notification has to be re-drafted and approved after wide consultation and determination of the ground reality on availability of iron ore in the State of Odisha.
The policy of pre-emption was invoked in 2012 and subsequently in 2014 and 2015 when the production of the ore has fallen done and to meet the requirement of state based plants. However, in present scenario, there is abundant availability of ore in Odisha.
Views of the State Government in W.P.(C) No.20774 of 2013 have post auction framework, and new MMDR 2015 changed connotation: The State is the custodian of mines and all decisions have to be taken based on the doctrine of public trust and equitable distribution of mineral resources. The auction of 21 expired mining leases of 89mtpa capacity was conducted through transparent and fair system of grant of mining lease under section 10B of the MMDR Act. Under the governing rules, the lessee is free to transport the mined out mineral to its plants situated any place in India. The new leases have already started production and significantly contributing towards State revenue through premium, royalty and DMF and GST.
In the above scenario almost all integrated steel plants have their own mines and few control many merchant mines as well. In fact the merchant mines have been reduced to a not be significant percentage.
The recent OMC auctions, which were supposed to be held on 08th July 2021had to be cancelled since none of the aggrieved players applied for buying iron ore. This is the situation which OMC is still mining 40% of its total EC capacity of 33mtpa%. JSPL the main group leader has time and again taken LTL from OMC and failed to lift material from the mines citing one reason or the other. It is clearly an opportunistic move at the expense of the State revenues to now cite shortage and push for pre-emption under a redundant notification of the State government. It is intently blocking majority of OMC dispatches for applying maximum quantity under Long term linkage which they never obey while lifting.
In the concluded auctions only big corporates with the exception of JSPL took away all the mines at unrealistic premiums. In fact JSPL also won the Guali iron ore mine at a premium of 144% but later a fabricated ground did not ultimately take the mine. Their BG has been forfeited and the government rightfully debarred them from further participating in the auction of Guali mines.
Infact, many plants in the State of Odisha are not operating due to their own issues and disinvestment plans. Actually, by transporting about 55mt produced iron ore to outside the State, the Govt. has earned Rs.9600 Cr (55mt x Rs.7000/tonne X 2.5% GST).Underutilization of State based Value Adding Plants is a misconceived notion: The arguments being espoused of underutilization is not tenable since there is surplus capacity in pellets, steel and even sponge. Production is a percentage of demand and if the demand is lower the product mix and overall production is varied. The fact that pellets are being exported clearly demonstrates that there is overcapacity in the sector. Even Steel is being exported and almost all Steel plants have profiteered by cartelization as is evident by numerous articles and statement by Hon’ble Minister like Nitin Gadkari.
The statistics of Pellet, Steel depicts that
a 20% jump in sales at 7.28 million tonnes for FY21 with production up by 19% to 7.51million tonne and booked highest ever standalone EBITDA of Rs. 13,055 Cr and PAT of Rs. 7,154 Cr in FY21. Its credit rating has enhancement to A from BBB- within a span of 4 months in
FY21.
State would loose heavily on Revenue in the mid and long term: The game plan of the corporates is to reduce IBM determined ASP on which Premium, Royalty, DMF and NMET is determined. It’s well known that prices are determined by demand and supply and determined correctly in a fair and equitable market. If the merchant miners are forced to given certain percentage of the material to State based plants, then these plants can easily cartelize and bring the prices down which will then impact ASP in the subsequent months. The supply side assured, the major buyers at Odisha would be out of the market, and the other players would be left to compete for the available quantity of iron ore.
Pre-emption is a retrograde suggestion by the players with vested interest. A new pre-emption policy if considered expedient and in public interest may incorporate the following:
a) Pre-emption percentage to be determined by a holistic study of requirement. Presently, there is sufficient production of iron ore in the State.
The products produced by this pre-empted ore should be sold in the State of Odisha only or some percentage fixed for the benefit of the State for sustainable growth of ancillary and downstream industries under MSME sector.
Pre-emption pricing at IBM prices may require some caveats. If the IBM prices starts falling and comes down by a determined and pre-fixed percentage, the policy should be put in abeyance to protect the State revenues.
highest ever profits by big steel players in FY2021 defeats their claim for becoming uneconomical due to high prices of iron ore: For JSPL,
There shall provision of Bank guarantee of value about 30% of value of mineral pre- empted to be submitted by end user along with acceptance to lift to the allotted material under pre-emption.
Lifting of pre-empted material should be binding on the end user with commensurate penalties of not lifting the material. This will facilitate compliance of the allotment is rightly manner.If pre-empted material is not taken, then the next month pre-emption percentage should be accordingly reduced.Pre-emption of ore should also be applicable to mines auctioned under merchant mining category. These quantities shall also be brought under pre-emption scheme as MCR rules provide right of pre-emption to be exercised on all mines in the State.Pre-emption should be applicable on all miners and for determining the ore available after self-consumption in value addition which is to be reduced before applying the pre-emption percentage, any inter-state export of material should be excluded.
Any mine whether captive or merchant available to the end user will have the EC capacity deducted from the pre-empted allocation.
In this context , Sunil Kumar Naik Secretary “JANMAT” in the petition demanded not to invoke pre-emption of ore.