FIMI wants govt to encourage investment

Federation of Indian Mineral Industries (FIMI) is an all-India federation registered under the Companies Act, 1956 to promote the interests of mining, mineral processing, metal making and other mineral-based industries and to attend to the problems faced by them in lease grants, renewals, tenures, production, taxation, trade, exports, labour, etc.

RK Sharma, Secretary General of FIMI, suggests the government to take steps to encourage investment in mineral exploration sector through fiscal incentives.

"The exploration spending in India, largely confined to the Public Sector, has so far been negligible averaging around $15 per sq km compared to $124 per sq km in Australia and $118 per sq km in Canada. In order to encourage investment in exploration activity especially by Junior Exploration companies, we are expecting tax model like venture capital or hedge funds, flow through share may be considered".

Following is the excerpts of his response to queries raised by Raja Iyer, Research Analyst at Asapp Media.

Following the ban on iron ore mining in Karnataka and Goa, NMDC is alleged to be showing monopolistic behaviour in terms of pricing of iron ore. The latest e-auctions of NMDC did not elicit good response because buyers feel that the grade of ore auctioned does not justify the high price charged by the state-run firm. Can we have your comments on this.
The trade for any commodity should ideally be conducted based on free market policies and driven by demand-supply scenario prevailing in the country as well in the international market. Unfortunately, the demand-supply matrix in the country has got severely disturbed because of the closure of iron ore mines in the States of Karnataka and Goa by the Hon’ble Supreme Court and in the State of Odisha on account of wrong policies and actions by the State government. Having said that, the prices of iron ore as fixed by NMDC are still aligned with the benchmark iron ore prices internationally. We do not find the distortions in the demand-supply matrix resulting in prices being higher than international prices. The result of supply side constraints in India only mean that the steel plants will have to buy iron ore at prices determined by the international benchmark and not by a balanced demand-supply matrix.

Some market participants expect that globally iron ore price is trending downward, reversing a rally seen in the last several months. How do you expect this to benefit Indian consumers of iron ore?
As mentioned earlier, the prices of iron ore in the country are governed by the demand-supply balance, international prices ruling duly tempered by local factors like taxes, duties, freight rates, constraints on transport etc. In this scenario, fall in international prices is likely to benefit the Indian consumers.

In order to protect the interest of the iron ore consumers in its state, the Odisha government is asking ore miners to give preference to these consumers before selling the raw material to buyers outside the state. Some blame this policy for shortage of iron ore outside the state. What is your stand on the issue?
It is true that the Government of Odisha has directed that "50 percent of the iron ore lumps and 50 percent of the fines won from the mines in any month, but not put to captive use by the lessees, shall be sold to the stand alone mineral based industries located in the state, limited to the requirement of such user industries, in an equitable manner, on payment of the prevailing fair market price by the user industries to the mining lessees."

In FIMI’s opinion, the direction of Odisha government on sale of ore by captive miners is unconstitutional and will impose undue burden and restriction which is a direct impediment affecting the free trade and commerce of the iron ore in the country. It has already affected the availability of iron ore outside the State. In particular, many sponge iron units located in the states of Jharkhand and Chhattisgarh have got closed owing to non-availability of iron ore lumps to feed them.

The central government is asserting its right to allocate mines, which is considered to be the prerogative of state governments. What is your stand on this issue?
The current dispensation with respect to allocation of mines in terms of MMDR Act, 1957 and Mineral Concession Rules, 1960 means the following:

a) the State Governments are empowered to grant or allocate mining leases for all minor minerals in the state
b) The State Governments are empowered to grant or allocate mining leases within the State for all major minerals with prior approval of the Government of India
c) The Central Government decides on the allocation of mining leases for Schedule ‘A’ and ‘B’ minerals to be leased by the State Governments

In the proposed MMDR Bill, 2011, provision has been made for granting leases to Schedule ‘C’ minerals also directly by the State Governments and Central Government will come into picture only if the State Government fails to take a decision or the matter is referred to the Central Government.

FIMI is of the view that most of the State Governments have failed to exercise their powers and they have not been able to decide on the cases of lease grants resulting in huge pendencies. We will therefore prefer to continue with the dispensation as currently prevailing in MMDR Act, 1957 and Mineral Concession Rules, 1960.

NGOs in Karnataka allege that in certain cases, mining activities in the state affected environment. How can we balance the objectives of environment protection, raw material security and economic growth?
FIMI has an arm called Sustainable Mining Initiative (SMI). Through the SMI, FIMI is creating awareness in the mining sector on how to balance the objectives of environment protection, raw material security (conservation of minerals) and economic growth. We believe that the industry has the responsibility of adopting best practices in exploration, mining and closure of mines as well as to adopt community development initiatives. On the other hand, the government needs to simplify and integrate various laws covering the mining industry so as to make them easy to comply and enforce. The current practice of not allowing mines to operate or putting more and stricter laws with effective implementation has proved to be counter productive.

What is your view on coal price pooling?
Our views on Coal price pooling is as under:

The concept of coal price pooling, i.e., pooling of domestic and imported coal prices for the purpose of supply of coal to power utilities by CIL is going to increase price of coal chargeable to the utilities and ultimately likely to be passed on to the final consumer.

FIMI reiterates the need for opening up of coal mining to private sector by granting leases to enable increasing the supply of coal rather than allow CIL to continue its monopoly over this sector so crucial to the National economy.