Karnataka now finds itself in the company of other states in the clamp down on mining and ore transport. This means India will soon drop down in its export rankings of ore, adding to the brewing export and currency troubles. A Shivkamal writes that in this delicate environment, further reforms in mining will prove to be difficult to implement, at least in the near future.The Indian mining sector would definitely like to forget 2011 and begin 2012 afresh: The past year has been the worst in the recent times for the sector, particularly iron ore miners and exporters, as scams running into crores of rupees and environmental issues occupying the centre stage.Never before has the Indian mining sector come under such intense censure by the government, anti-corruption agencies and the judiciary, leading to drastic losses in the industry and reversal in growth rate.From being the third largest exporter of iron ore in the world, India will drop out of the top five for the first time in the last one decade because of a combination of factors.Iron Ore ExportsWith mining crippled in both the states, Federation of Indian Mineral Industries (FIMI) expects exports to be lower in 2010. FIMI has estimated that iron ore exports would be around 60 million tonne (mt) in 2011, a whopping 38 percent plunge from the previous year's 97 mt. Karnataka accounts for about 33 percent of India's exports of iron ore. Goa's share in exports of iron ore is around 26 percent. There seems to be no immediate solution in sight for miners and exporters in Karnataka and Goa.As many as 86 authorised mines have stopped excavating iron ore in Karnataka, while another 45 mines have been closed in Goa because of ecological reasons. First, the daring exposé of illegal mining of iron ore in Karnataka (estimated in excess of Rs 16,000 crore) brought mining and exports to a complete halt in the state. Then, the environmental issues related to mining in Karnataka and the neighbouring Goa came to the forefront, resulting in the enforcement of a blanket ban on mining. Now, Orissa government is under acute to pressure to end the iron ore mining mafia. In effect, the mining sector met its Waterloo in 2011."Thousands of labourers have become jobless. Allocation of coal blocks to big players in steel and aluminium sectors has been delayed. Several projects have not taken off because of the delay in allotting lease for captive mines.The mining industry has to extricate itself out of this mess with government playing the role of a catalyst. This turn of events has prompted big companies to look beyond India for resources," summarised Ashok G, Executive Director, SLN Mining Consultants, which has played a critical role in channelling Indian investments into mining of coal and iron ore to Indonesia and Australia.Not so fine a judgment: It is not the probe by one agency alone that has affected the mining industry in the country. The Supreme Court has constituted a Central Empowered Committee to look into illegal mining all over the country. Additionally, the Union government constituted a Commission headed by retired judge of the Supreme Court MB Shah to examine all cases relating to illegal mining in the country. At present, the Commission is visiting all iron-ore rich states.The Shah Commission has already submitted its interim report after inspecting mining areas in Karnataka, Goa and Orissa, In addition to these two, the anti-corruption units (such as the Lok Ayukta in Karnataka) in respective states are also tasked with investigations into illegal mining.Iron ore fines constitute about 90 percent of the export stock, according to FIMI data. Karnataka produces approximately 45 mt of iron ore each year of which 30 mt are exported through Karnataka, Goa, Tamil Nadu and Andhra Pradesh ports. With the ban in place in Karnataka, nearly 60,000 labourers have lost their livelihood in Karnataka.|According to FIMI Vice President Basant Poddar, the ban on exports of iron ore from Karnataka alone would lead to a foreign exchange loss of Rs 13,000 crore annually to the Centre and Rs 3,000 crore to the state. "This ban is illogical," he claimed. "The stockpiling of iron ore fines in mines will lead to ecological problems. A majority of the miners export iron ore fines from Karnataka and not lumps.The Indian steel industry does not consume iron ore fines, but the Chinese steel mills consume them as an ingredient in steel making.""We are not asking for permission for all miners. There are several miners, who are adhering to the law of the land. They have been in the mining industry for decades. Let the government check the credentials of such miners and approach the court for remedy. Killing the mining industry is not the answer for all problems," Poddar recommends.Thankfully for the exporters, all is not lost as the Union Government has rejected the MB Shah Commission's recommendation for complete ban on the overseas sales of iron ore and manganese.In its Action Taken Report (ATR) on MB Shah Commission's interim report, the Union Ministry of Mines concluded that "While the demand for iron ore is a reality, it cannot be held that exports are the reason for illegal mining. Rather, it is lack of governance at state government levels which has largely contributed to illegal mining. A ban on export of iron ore may not be feasible."The ATR further added that the export of minerals, including iron ore and manganese ore, is guided by the export-import policy, administered by the Department of Commerce, and the rules framed in the Mines and Minerals (Development and Regulation) (MMDR) Act do not bar export of minerals.The recommendation for ban has now been referred to the Department of Commerce.Karnataka Chief Minister DV Sadananda Gowda has also been sympathetic towards the iron ore miners in his state. He said the state government will shortly approach the Supreme Court for remedy. "We are seeking the advice of the legal experts on the issue," he said recently in a press briefing on the issue. "The court is aware of the problems faced by the domestic steel (sponge iron) producers. We hope all these aspects will be taken into consideration."Concerned that the ban on exports of iron ore is impacting the investments in the mining sector and state revenues, Gowda says the state is losing about Rs 4,000 crore annually owing to the ban, and more than 150,000 people have lost their jobs. "However," he added, "it is a sensitive issue and several factors are involved, so we are consulting legal luminaries to come to the rescue of our steel plants."Coal ConcernsUninterrupted power supply for the mining industry, particularly for the downstream segment like steel plants and aluminium smelters, has become a major cause for concern with hardy any capacity addition to the national grid from the private sector. The auctioning of coal blocks is getting delayed. According to original plan, the auctioning of coal blocks should have commenced by now. But there is no announcement as yet when the auctioning would actually commence.Naturally, the delay in auctioning coal blocks has upset the investment plans of large players. "We are sitting on large reserves of coal in this country," observes SK Roongta, Managing Director, Vedanta Aluminium, "But we are not in a position to exploit the resources to extend benefits to the mining and metals industry. We hope that the auctioning of the coal blocks takes place at the earliest. In the meantime, we will evaluate all options of sourcing coal to expand our smelting capacity."Roongta says it is unviable and unfeasible for Indian companies to import coal. "We can mine coal at the cheapest rate in the world, $10 per tonne through surface mining, and $15 per tonne through underground mining.These are still the cheapest rates. If we import coal, companies have to pay for the ocean freight, port handling charges and inland transportation: a model that is not sustainable for the companies as well as the country in the long term."Consequently, many companies are being forced to look beyond India for dedicated coal supply. In the last eight months alone, six big players in the Indian mining industry have explored coal blocks in Indonesia. "The Indonesia coal has a high calorific value. Several top Indian companies have commenced talks with local firms.We expect at least six Indian companies to announce coal mines project in Indonesia in the next one year," pointed out Ashok of SLN.But from the long term perspective, it is clearly the local coal blocks that are of interest to the Indian mining companies. The Union Government has identified as many as 51 mines across the country with an estimated 8,000 mt to 10,000 mt of coal reserves, for auctioning.Those mining companies, which have already been allotted coal blocks routinely, are also facing plenty of problems. In the last 18 years, 193 coal blocks have been allotted to various companies for captive use. But only 28 are operational so far. As against an estimated target of 90 mt (per year) from 193 coal blocks, only 38 mt are being produced now.Consequently, the coal deficit in the country is likely to reach 137 mt by the end of the current fiscal. No coal block has been allotted for captive use to private companies since October 2008. Experts such as KSS Murthy, Honorary General Secretary, Aluminium Association of India (AAI) say any further delay could seriously affect the growth of the mining sector in India in the long term. "Look at the existing ecosystem in India," Murthy says. "India has 5 percent (3 billion tonne) of the world's bauxite resources. India also has the fourth largest coal reserves in the world with an estimated 92 billion tonne. Several large companies like Nalco, Hindalco and Vedanta have lined up huge projects, but have been stuck for want of coal supply."Uranium from Down UnderIndia has set an ambitious target of 30 nuclear power stations in the next 20 years to meet the energy requirements. A major development that has favoured the country recently is Australia has recently decided to reverse its earlier policy not to sell uranium to India.Australia has about 40 percent of the world's known uranium reserves, but supplies only 19 percent of the world's requirements. It supplies uranium in large quantities to the US, China and Japan. During the first week of December 2011, in a landmark move, the ruling Labour Party backed the decision to sell uranium to India. At present, Australia does not supply uranium to countries that are not signatories to the nuclear Non-Proliferation Treaty. India immediately welcomed the development. "We understand that Australian Prime Minister Julia Gillard proposes to seek a change in the ruling Labour Party's policy on sale of uranium to India in recognition of our energy needs, the impeccable record of our non-proliferation treaty (NPT) accord and strategic partnership on this," said SM Krishna, India's External Affairs Minister in a press briefing.It is estimated that India needs 5,057 tonne of uranium during the 12th Five Year Plan (2012 to 2017). The estimate includes 318 tonne of low enriched uranium. India has already inked two deals – one with Russia to import 1,375 tonne of natural uranium dioxide pellets and another with Kazakhstan to import 1,150 tonne of natural uranium ore concentrate.However, Australia still has to go through lengthy processes before the first shipment reaches India.Revolutionary Mining Bill & ReformsThe only positive development for the Indian mining sector came in the form of the MMDR Bill 2011, which has been placed in the Parliament. However, the Bill, controversial because of the large profit-sharing and other provisions mandated for displaced populations, did not pass this winter as a parliamentary standing committee will examine the provisions in the Bill, likely to take a few months at least before it comes up for parliamentary debate.The Bill seeks a complete and holistic reform in the mining sector with provisions to address issues relating to sustainable mining and local area development, benefit sharing mechanism to the people affected by mining operations. The Bill also aims to ensure transparency, equity, elimination of discretions, effective redressing and regulatory mechanisms along with incentives encouraging good mining practices, which will also lead to technology absorption and exploitation of deep seated minerals.The central government is of the opinion that the states should take active interest in attract investments by taking advantage of the new Bill. "The new mining policy will benefit every stakeholder. It will also speed up clearances for new mining project. However, the states have to show the same level of interest in attracting investments into the mining sector," said G Srinivas, Joint Secretary, Union Ministry of Mines.Strategic plan: As many as 47,000 applications for mining are pending before various states and the Centre. Realising the need to introduce reforms, the Union Ministry of Mines has prepared a detailed Strategic Plan document "Unlocking the Potential of the Indian Minerals Sector" in order to systematise the functioning of the Ministry and align it more directly with the vision emanating from the National Mineral Policy.The strategic plan has identified that the Indian minerals sector holds a huge potential for all stakeholders, including the Union government, state government, community and the entire economy. With the right kind of support, the mining sector has the potential to significantly contribute to the GDP and also improve the revenues of royalty and taxes. The strategic plan has identified the six priorities to achieve the objectives. These priorities are (i) expanding resource and reserve base by stepping up exploration and aiding international acquisition of strategic minerals (ii) reducing permit delays to create a more favourable policy environment (iii) setting up core enablers for mining-infrastructure, human capital and technology (iv) ensuring sustainable mining and development (v) creating an information, education and communication plan and (vi) establishing the right governance structure for effective implementation.As some of the important minerals are on the concurrent list, the implementation of the reforms in the mining sector could be a major challenge for the Centre. For instance, Karnataka imposed a ban on exports of iron ore though it was not suitably empowered to. However, the issue was dragged to the courts and impacted the mining industry several months. The Union Government also has a major challenge in ensuring the smooth passage of the Bill in the Parliament.