Growing compulsions for investment breakthrough in mining

Last Updated: Mon, Dec 24, 2012 19:41 hrs

The Tata Group, which earns more than 60 per cent of its over $100 billion revenue outside India, finds a wait for the best part of a decade to secure a host of clearances for a steel plant “totally unacceptable”. As situations like this are standing in the way of growing domestic businesses of the group, it is not to come as a shock if this leads to a shift in its investment focus to outside markets. Whatever the group’s frustration with policies, Tata Steel, braving time and cost overruns, is giving shape to its six million tonne (mt) Orissa steel project. The experience of Posco and ArcelorMittal, which proposed building some mega mills here with proper mine linkages well ahead of the 2008-09 world recession, is even worse.

Unarguably, nothing puts the patience of investors to a more severe test than their trying to secure an iron ore mining lease in India. A lease applicant will have to suffer agony for up to eight years before he has relevant papers in hand. In sharp contrast, leases can be had in Australia, where the mining sector has six per cent share of gross domestic product (GDP), in about a year, so efficiently applications are processed by concerned agencies. Vedanta group Chairman Anil Agarwal says India can produce most of the “key imported resources at 15 to 20 per cent of import cost. In the process, we can save $300 billion on yearly basis and within three to four years, we can add a trillion dollars to our economy.” Sadly, indigenous production meets only 20 per cent of the country’s requirements of natural resources.

Steel Authority of India Limited (SAIL) Chairman Chandrasekhar Verma looks holistically at the mining sector, which besides being an “enabler of industrialisation” creates infrastructure and jobs in the country’s remotest parts and generates big revenue for the exchequer. “We have got to make up a lot of leeway as the mining sector’s contribution to GDP at 1.2 per cent has remained constant now for a decade. In the corresponding period, resources rich countries like Australia and Chile have seen the sector’s share in GDP growing from four per cent to six per cent. The world knows how focussed China is on strengthening the mining sector, no matter that its iron ore and bauxite are of very poor quality. Chinese mining activities now contribute three per cent to GDP, up from one per cent a decade ago.”

Verma makes the point that as India’s share in the global spending on exploration of mineral deposits is an insignificant 0.3 per cent compared with 19 per cent for Canada and 12 per cent for Australia, we have very little to show in terms of growth in reserve base. “We also need to ponder over our capital expenditure in mining growing at a measly CAGR of seven per cent over the past decade while this was 28 per cent for China, 23 per cent for Australia and 22 per cent for Brazil,” he says. Verma’s observation calls for pondering by policymakers in the context of our growing dependence on coal imports and the country chasing steel capacity of 200 mt by 2020 and 12th Plan aluminium and alumina (feedstock for smelters) capacity of 4.7 mt and 13.3 mt, respectively. Except for SAIL and Tata Steel getting total supplies of iron ore from captive mines, steelmakers, particularly in Karnataka are strained in using their capacity as mining restrictions on environmental grounds have created supply issues.

But steel is not the only industry getting the stick on the raw material front. Take the case of Vedanta which, has a one-mt alumina refinery to be expanded to five mt and a 500,000-tonne aluminium smelter, which is expandable to 1.6 mt, both in Odisha. Vedanta invested in the hope that it would do bauxite mining at Niyamgiri hills and if anything goes wrong, state agencies would arrange bauxite supply from other sources. With none of the options working out, Vedanta finds itself in a limbo. In any case, it does not augur well for the aluminium industry that since National Aluminium Company Limited (Nalco) opened the country’s biggest bauxite mine in Odisha’s Panchpatmali hills, not a single mine of some size has been commissioned. As if supply issues are not enough to be contended with, in many cases Maoists are stubbornly resisting opening of new mines. SAIL, Nalco and NMDC all have borne the brunt of Maoist disruptive actions.

However, the steep fall in iron ore production and consequently the tightness in supply of the mineral for domestic use, but more for exports, is because the court has found mines’ operations in Goa and Karnataka not in conformity with environmental regulations. Unfortunately, the country’s largest iron ore producer NMDC, which as a matter of policy sells virtually all its production to domestic steelmakers, is being painted in unfair light for the steel industry’s raw material supply woes. The most unfair cut is, for strange reasons some are seeing “conflict of interest” in the same person holding chairman’s office in SAIL and NMDC, albeit at the government’s behest. But SAIL being self-reliant in iron ore, any such barb should die an instant death.

More from Sify: