Mysore Minerals Limited (MML), the state-owned mining company, has suffered grave financial loss due to several flaws in the execution of its joint venture with JSW Steel Ltd. The company has suffered losses to the tune of Rs 54.25 crore due to delays in raising the premium charged on iron ore sold to JSW between 2000-01 and 2009-10, according to a report of the Comptroller and Auditor General of India (CAG).
The company had formed a joint venture company, Vijayanagar Minerals (Private) Limited (VMPL) with JSW Steel in 1998 for joint exploitation of iron ore. As per the memorandum of understanding, MML was to hold an equity of 30 per cent in VMPL while the balance 70 per cent equity was to be held by JSW.
The cost of development work done by MML in Thimmappanagudi Iron Ore Mine (TIOM) was treated as contribution of the company towards equity capital, which was agreed to at Rs 1.74 crore. The MoU stipulated that the JSW was to bring in such mining leases as might be granted to it by the government. Against the annual capacity of 8 million tonnes, JSW would purchase 3.5 million tonnes of iron ore fines and MML would have a share of 1.5 million tonne of iron ore lumps at the transfer price (lower than the market price) to be decided by VMPL.
MML was entitled to get a premium on the dispatch of ore raised from TIOM at the rate of 6 per cent and 10 per cent respectively for fines and lumps, on the market price.
However, JSW had not brought its own mines to VMPL as its contribution and ore was extracted only from TIOM till September 2012. The CAG Report, tabled in assembly on Thursday, has pointed out that the proposed shareholders’ agreement, which could have created an obligation for fulfillment of the provisions of the MoU had not been signed yet (till September 2012).
During 2000-01 to 2009-10, 9.25 million tonnes of iron ore fines valued at Rs 1,052.89 crore was mined from TIOM, for which the company got an amount of Rs 63.17 crore by the way of premium at the rate of 6 per cent on market price. However, JSW got a benefit to the tune of Rs 876.90 crore because ore was supplied to them at a transfer price.
“The non-availability of a matching mine from JSW had resulted in sole exploitation of the mines of MML, coupled with a low premium of 6 per cent on iron ore fines and MML was also deprived of the lumps it was entitled to from the JSW mines. The one-sided agreement put the company to grave financial loss,” the CAG report said.
Only in March 2009, MML proposed to enhance the premium from 6 per cent to 31 per cent and took up the matter with the government of Karnataka. Subsequently, the state government advised the company to hold negotiations with JSW. At a joint meeting held with JSW in November, the premium was raised to 50 per cent with effect from April 1, 2009. However, JSW did not furnish proper response.
The board, in February 2010, decided that JSW should pay 60 per cent on the company’s market prices as premium on iron ore fines produced from TIOM. The government accorded approval for 50 per cent. However, the delay in deciding the quantum of increase in premium resulted in supply of 1.42 million tonnes of fines between April 1, 2009 and March 16, 2010 at the earlier fixed premium of six per cent resulting in loss of revenue of Rs 54.25 crore.
Further, delay in implementation of the enhanced premium on iron ore sold to JSW caused an additional loss of Rs 7.29 crore as the joint venture had dispatched 73,495 tonnes of iron ore fines between March 17, 2010 and March 31, 2010. Thus, the company suffered a total loss of Rs 61.54 crore due to delay in increasing the premium and also by not safeguarding its interest while drafting the MoU.