Export & Perish - A note on Iron ore policy!

The galloping growth of iron ore exports from India is posing a grave threat to the domestic steel industry. From a mere 30 million tonnes just three years ago, India has exported 90 million tonnes in 2005! Export and perish seems to have become the creed for the mining industry. The Hoda Committee has made several excellent recommendation to revamp the National Mineral Policy. However, its unfortunate recommendation to allow free exports of iron ore without either qualitative and quantitative restrictions, if accepted, will drive the last nail into the coffin.

It is interesting to note that Australia has a per capita reserve of 2000 tonnes or iron ore, Kazakhstan 1267 tonnes, Ukraine 1417 tonnes, Russia 389 tonnes and USA 50 tonnes. Yet few of them export iron ore. India with a trifling per capita availability of merely 21 tonnes is exporting 90 million tonnes annually. Even China, which has almost twice the reserves of India, is importing 50% of its requirement to extend the life of their domestic resources. The Hoda Committee, accepting the contentions of the mining industry, believes that with resources of a mere 23 million tonnes India can afford to export unlimited quantities of iron ore.

This simplistic approach relying purely on basic arithmetic has led the Hoda Committee to believe that our resources can last for the next 100 - 120 years. Such facile conclusions may be good enough for a layman. However, the policy makers have to apply a more rigorous analysis before jumping to such conclusions, which have both short term and long term implications for the national interest.

Out of the 23 billion tonnes of iron ore so far identified, 13 billion tonnes happen to be hematite ore on which the domestic steel industry is based. The remaining 10 billion tonnes of magnetite ore happen to be located in the Western Ghats regions and mainly in the States of Karnataka and Goa. First of all, all Western Ghats are ecologically fragile areas and environmentally highly sensitive. The only industry to exploit a small part of magnetite ore for the last few decades was the Kudremukh Iron Ore Co.Ltd. However, local NGOs' activism took the matter upto the Supreme Court which has banned the operations of this public sector company. With the growing vigorous consciousness of environmental and ecological concerns, with zealous NGOs and an activist judiciary, the exploitation of this 10 billion tonnes of magnetite iron ore is next to impossible. Therefore, to assume that these magnetite resources could always be available for beneficiation is to live in a paradise which wise men would avoid. Secondly, if the mining industry does really believe this argument, it would have by now established dozens of beneficiation plants in the Western Ghats regions to upgrade this magnetite ore and export it. The fact that they have not done so strengthens the argument of the unavailability of the magnetite ore for exploitation.

The domestic Steel industry therefore has to live with an availability of 13 billion tonnes. Even if as contended by the Hoda Committee, further detailed exploration is undertaken, it is conceded that not more than 20 - 25% addition can be expected to hematite resources. So, we are talking about something like 15 - 16 billion tonnes of hematite resources optimistically. This can barely last 20 - 30 years as we shall see.

The discussion on framing the National Steel Policy seriously started sometime in 2001. At that time, the global as well as domestic scenario had not yet shown the kind of resurgence which we are witnessing today. Therefore, the National Steel Policy took the conservative view that India will be producing 110 million tonnes of steel by 2020. While considering this, we should remember that according to the recently released data on China : By end 2005, China posted steel making capacity of 470 million tonnes, with 70 million tonnes under construction and 80 million tonnes further planned, taking the total to 600 million tonnes. Last July, China produced over 36 million tones of steel. Events have caught up with India too. According to a recent official study, the Indian steel industry is poised to reach a brown field expansion of 88 million tonnes by 2012 - 2013 and a green field expansion of 42 million tonnes. This could take the total domestic capacity to 120 million tonnes by 2012 - 2013. With the GDP growth projected at 8 - 10% in the next decade, and the leaping consumer demand for steel, we should not be surprised if we reach a capacity of 200 million tonnes by 2020. The National Steel Policy has also been overtaken with regard to the growth in the export of iron ore. The Policy envisages that we will reach an export figure of 100 million tonnes of ore by 2020. However, we have already reached 90 million tonnes of export by end 2005. Even with the current qualitative and quantitative restrains, exports are growing at 15% annually. At this rate of expansion of the domestic steel industry and iron ore exports, the 13 billion tonne hematite resources would be exhausted within 25 years.

By exporting such an immense quantity of iron ore year after year we are giving a wrong signal to the prospective FDI. India suffers from several infrastructural handicaps and a company like Tata Steel prefers to establish its Ferro-manganese plant tin South Africa. News reports indicate that it is planning to establish a 2 million tonne steel plant in Iran! If Indian iron ore of high quality continues to be freely accessible in the international market indefinitely, there is hardly any incentive for FDI to come to India. If a foreign investor can import the required quality and quantity of iron ore from India he would rather set up his plant in Thailand, South Africa or Korea rather than in India. POSCO and LN Mittal evincing keen interest in setting up steel plants in India is mainly due to the hopes of getting assured supply of iron ore next door.

It is affirmed that 87% of the ore exported is in the form of fines. It is also affirmed that if these fines are not exported they will lie unutilized. The domestic industry is crying hoarse that they want to use the fines but the exporters find it more attractive to export iron ore even when the domestic industry is willing to match the export prices and even offer more. The reasons are obvious.

The domestic steel industry is not arguing for an immediate ban on export of iron ore whether lumps or fines. To expect that would be to expect too much. The domestic steel industry is aware that the Goa region mines iron ore which is of low grade and which is not currently utilized by the domestic industry. Naturally this ore will continue to be exported until the domestic industry gears itself to utilize it within the country. The domestic steel industry is arguing, first of all, for an announcement by the government that exports from other regions excluding Goa will be tapered of within a reasonable period, say 5 - 7 years. This could be at a reducing rate of 10 - 15% annually. By making this announcement the domestic industry as well as the FDI will be incentivised to set up steel capacity in India rather searching venues elsewhere. At the same time, the government can lay down a conditionality that in case of captive mines as well as large scale stand alone miners, agglomeration facilities (sintering and pelletisation), should be established within a period co-terminus with the tapering of exports. To encourage the industry to go in for establishment of agglomeration facilities the government may also give fiscal incentives like faster depreciation etc.

It is unfortunate that the Hoda Committee's recommendations restrict grant of captive mines only for capacities existing as of 1st July 2006. Out of a total current capacity of 42 million tonnes this happens to be a mere 10 - 11 million tonnes in the case of Rashtriya Ispat Nigam Ltd., JSW Steel Ltd., Essar Steel Limited and Ispat Industries Ltd. SAIL and Tata Steel together have capacities of less than 20 million tonnes as on that specified date.

With the announcement plan to take up the capacity of domestic Steel industry to 120 million tones by 2012 - 2013 restricting the captive mining capacity only to 20 - 30 million tones makes no sense. The captive mining capacity should be provided to all committed expansions. Otherwise, with no assured supplies of ore and galloping exports fast depleting limited reserves, who would be willing to invest large resources in an uncertain future? States have stipulated that they will give captive mines only to those companies that have established steel capacities within the boundaries of that State. This is very illogical. This concept negates the unity of India and introduces the pernicious doctrine of value addition within the State. What will happen if Gujarat, Maharashtra and Andhra Pradesh adopt a policy that no gas and oil should be exported from those States or no coal should be exported from Orissa, Bihar and Chattisgarh? What will happen to the steel industry established in Gujarat, Maharashtra and Andhra Pradesh if Orissa, Chattisgarh and Jharkhand refuse to allow their ore to be exported to feed these plants? India is already suffering a water war between the various States - the Cauveri dispute, the Yamuna dispute, the Narmada dispute and so on. Are we going to introduce an Iron Ore war between various States?

The Indian Steel industry does not want any employment, specially of tribals, to be displaced from their current employment. The Indian Steel Alliance (ISA) has therefore recommended that an export duty of say, Rs.500 per tonne on ore exported during the next 5/7 years may be levied to create a Mining Development Fund. Within 5 years this fund would be able to raise over Rs.15,000 crores. This can be utilized to strengthen such government agencies as GSI, MECL and the various Directorates of Mining, R & D, Afforestation etc. on the one hand and for creating a safety net for the rehabilitation of the tribals and rural mine workers.

This is not a partisan approach. There is no question of which industry makes more profits - steel or mining. ISA is recommending a policy in the long term interest of the nation. Ban on exports is supported by the Consultative Committee of the Parliament for Steel, by the Chief Minister of Karnataka, Chattisgarh, Orissa and Jharkhand, by the leaders of various national parties and by the three major industry associations, viz. CII, FICCI and ASSOCHAM. In the face of such near unanimous recommendations, it would be unwise to overlook national interests.

We should not allow our limited finite, non-renewable reserves to be exported for the benefit of other countries to generate employment in China, Korea and Japan to the detriment of the domestic growth and employment. We should not allow the future generations of India, deprived of such a strategic product as steel, to condemn us for having frittered away our long term assets for immediate trifling gains. Let not history blame us that we sold away our birth right for a mess of potage!

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