Undermined

Hit by scams and delays in clearances, the mineral mining sector struggles for investments while shelved projects pile up.

Hit by scams and delays in clearances, the mineral mining sector struggles for investments while shelved projects pile up

In August last year Rio Tinto, the world’s second-biggest miner, announced it was abandoning its $500-million diamond mining project in Bunder, Madhya Pradesh. It followed in the footsteps of global majors ArcelorMittal and Posco, which had earlier given up on massive mining efforts they had launched in Odisha and Karnataka. In fact, ArcelorMittal now wants to set up a solar plant instead of the steel plant in the 2800-acre land it has acquired in Karnataka. Rio Tinto had been at work since 2002 and had sunk over $70 million into the project. Initially, in 2008 the company had estimated a yield of 37.4 million tonnes kimberlite, which would yield 27.4 million carats of diamonds, but a year later revised the figures to 53.7 million tonnes kimberlite producing 34.2 million tonnes diamonds.

Officially Rio Tinto maintained it was pulling out because of the global commodity prices crash, which saw it post a loss of $866 million in 2015. It claimed it wanted to conserve costs and reduce future investments. But it is clear that protracted delays in getting clearances also played a big role in its decision. The project, close to Madhya Pradesh’s border with Uttar Pradesh in Bundelkhand, falls in the tiger corridor between the Panna Tiger Reserve and the Nauradehi Wildlife Sanctuary. One particular environmental clearance had been hanging fire since 2014, with the Ministry for Environment and Forests maintaining that mining in the region could damage its tiger landscape and suggesting that Rio Tinto consider the underground mining route, which is more expensive.

Rio Tinto is not an isolated example. Tedious consent obtaining processes, bureaucratic hurdles and problems in land acquisition have long stifled investments in mining in India, and have lately been scaring even existing investors away. Though India has vast mineral resources (see What Lies Beneath), nearly half of its 50 mineral bearing districts are in tribal areas, most of which have special laws to prevent tribal land alienation, making land acquisition a tough proposition. Further, the average forest cover in these districts is 28 per cent as against the national average of 20.9 per cent,

which means many mineral rich zones lie in forests, where special laws to protect the environment inhibit mineral extraction.

Again, 40 per cent of mineral bearing districts in the top six mineral rich states – Odisha, Rajasthan, Chhattisgarh, Karnataka, Jharkhand and Madhya Pradesh – have a Naxalite presence, which endangers workers’ security and makes mining exceptionally difficult. Even so, Rio Tinto’s departure is particularly worrisome since it has taken place under the Narendra Modi- led National Democratic Alliance ( NDA) government, which had pledged to improving the ease of doing business in the country. Posco and ArcelorMittal had pulled out when the previous United Progressive Alliance ( UPA) government, much criticised for its ‘policy paralysis’, was in power.

No doubt, in May last year, the NDA government did make several crucial changes in the Mines and Minerals (Development and Regulation) Act ( MMDR Act), 1957, designed to both ensure greater transparency and increase investor confidence. Many amendments to the MMDR Act had been made before as well, but the recent ones have far-reaching implications. The most important change was specifying that, for all major minerals, an auctioning process would have to be followed while awarding mining contracts, instead of allocations by state government as was the case earlier, thereby greatly curtailing the discretionary powers of politicians and bureaucrats which often led to corruption. A second key change was increasing the lease tenure to 50 years for products other than coal, lignite and those related to producing atomic energy, to encourage miners to make longer term investments. Since then, 19 mines have been auctioned – which will bring in revenues of `64,000 crore over the coming 50 years. Another 30-40 mines are likely to be auctioned in the next six months.

Hurdles Remain

But for a mining company, winning a contract is only the start of a long and tedious process of getting clearances – from the environment ministry as well as the government of the state where the project will be located – before it can start operations. Some efforts to cut down the time taken for clearances have been made. On completion of two years in office last May, the then Environment Minister Prakash Javadekar said he had reduced the average waiting period for approval from 600 days to 190. “Earlier, for 10 years, the (environment) minister was known as the obstructionist minister, and (the ministry) as the blockade

BALVINDER KUMAR Secretary, Ministry of Mines We have constituted an interministerial group which is looking into cases where there have been long delays” ANIL AGARWAL Chairman, Vedanta Resources India has the same or even better natural resources than Brazil, Australia, Canada... we need more resources to monetise our potential”

ministry or speed breaker ministry,” he said. “Now, we have changed the image of the ministry by ensuring that projects do not remain pending for years for want of environmental clearances.”

Indeed, the government is keen to bring down the waiting period even further to a maximum of 100 days. It is also contemplating a single window integrated online clearance system. “Hopefully, we will get approval for that soon,” says Balvinder Kumar, Secretary, Ministry of Mines. “We have also constituted an interministerial group which is looking into cases where there have been long delays.” Industry insiders agree that the government has the best of intentions. “The government does want to expedite the clearance process and increase the share of mining in the Gross Domestic Product ( GDP) by one per cent,” says R.K. Sharma, Secretary General, Federation of Indian Mineral Industries. “But that requires a positive orientation which is scarcely seen – be it in the Central government or in the states.”

Therein lies the problem. Javadekar’s claim notwithstanding, a comparison of the rate of clearing mining projects in the first two years of the NDA government, with the record of its predecessor UPA government, shows there has been no visible change. Some 221 mining projects still await clearances. Not surprisingly, despite the government’s assurances, miners are loath to invest. “Mining is a very complicated, indeed a somewhat shady subject, in India,” says Sanjay Kothari, Vice Chairman, KGK Diamonds, which has operations in 18 countries. He makes it clear that his company is in no hurry to expand in India. “There are so many complexities in India that we do not want to take a chance here,” he adds. “You cannot put money into the earth without (being sure of) getting something out of it. We would prefer to expand in Brazil, where too there are complications, but of the sort that can be overcome.”

Vexed Vedanta

A poignant example of the unexpected obstacles that can arise in Indian mining is the attempt by Vedanta Resources to mine bauxite in the Niyamgiri Hills of Odisha. In 2009, Anil Agarwal, founderChairman of Vedanta, India’s largest mining and non-ferrous metals company, forsook his plan to acquire Asarco LLC, a US- based mining, smelting and refining company, to invest in a $8 billion aluminium refinery in Odisha’s Lanjigarh district, for which he expected a steady supply of raw material from the Niyamgiri mine. He had to pay damages of $132.75 million to Asarco for pulling out, and rued his decision even more over the next four years, as stiff resistance from the Dongria tribe in the Niyamgiri Hills ensured mining could not begin. He finally gave up on the mine, but not before his company’s image had taken a beating, thanks to extensive adverse media coverage and the support the tribals got from politicians, including Congress Vice President Rahul Gandhi. The refinery currently operates at half its capacity and faces an uncertain future.

With instances like these, it is no wonder that the foreign direct investment ( FDI) in Indian mining is an abysmal 0.67 per cent of the total FDI inflow, despite it having been opened to 100 per cent FDI through the automatic route since 2000. Foreign investors have every reason to be cautions. “India has the same or even better natural re-

sources than countries like Brazil, Australia, China and Canada, but while these countries have moved ahead, we need more resources to monetise our potential,” says Agarwal of Vedanta. “The multitude of stakeholders makes the process of drafting and implementing policies quite complex. The tax rate in India benchmarks well against other resource-rich countries, but the cumulative government rent, and the combination of all taxes and royalties, make our rates very high.”

Besides, reliable data on the country’s mining potential is hard to come by. Global mining giants like Vale and BHP Billiton have even said they do not trust official Indian data. Mines Secretary Kumar acknowledges that their skepticism could well have some foundation. “Exploration has been carried out only by the Geological Survey of India,” he says. “It is a massive department (doing many other things) and so the extent of work that could have been done has not been done.” India is among the lowest spenders on mineral exploration among mineral-rich countries (see Low Priority). “Big foreign players will come in once we carry out large-scale exploration,” adds Kumar. “We have identified 100 blocks of 100 sq. km each for detailed exploration, which should be completed in two years.”

Blatant Illegalities

The mineral mining industry, however, is also partly responsible for the difficulties it faces. It has a history of indiscriminate illegal mining, without a care for its effects on the environment, on forest cover or on the local population. The 2013 report of the Justice M.B. Shah Commission, set up by the Ministry of Mines to investigate illegal mining of iron ore and manganese, pegged the value of such mining between 2008 and 2011 at nearly `60,000 crore in Orissa, `35,000 crore in Goa and `22,000 crore in Jharkhand. Some experts have suggested that if figures from all the states are collected, the amount involved will surpass that of the notorious 2G spectrum scam or the coal mining scam.

Industry insiders do not deny the charges. “It is important for companies to ensure corporate governance standards are maintained,” says Agarwal of Vedanta. “We must realise we run a business of great complexity, built around diverse natural resources. Only when the state and the private sector move towards holistic betterment will employees, communities and the overall economy benefit.”

The aftermath of the Shah Commission report saw the Supreme Court imposing multiple bans on iron ore mining in Goa, Odisha and Karnataka. As uncertainty prevailed, production fell – iron ore production, for instance, dropped from 207.16 million tonnes in 2010/11 to 129 million tonnes in 2014/15. The index of mineral production came down from 131 to 125 in the same period. Fortunately, the

situation has been improving in the last two years – between April and October 2016/17, mineral production rose 7.1 per cent over the previous year. The increase in the production of ‘metallic’ minerals such as iron ore, chromite, bauxite, copper, lead and zinc, was even higher at 13.28 per cent. “The worst is over for the minerals sector,” says Kumar.

The jury is still out on that. Will investors show more interest? The government intends to re-auction the Bunder diamond project following Rio Tinto’s departure, but whether it finds a new taker remains to be seen. In the same region lies state-owned NMDC’s Panna diamond project, which, too, faces a Supreme Court-appointed environment impact monitoring panel’s directive to shut down operations to protect the tigers in the area. The deadline was 2016, which has since been extended to 2020. “Rio Tinto spent a huge amount on Bunder,” says Kothari of KGK Diamonds. “Who spends that kind of money unless it is on a really profitable project? No one can do anything in Bunder.” ~

SESHAGIRI RAO Joint Managing Director and Group CFO, JSW “In 25 years, why is it that none of the companies – JSW, Ispat, Bhushan or Essar – have got the mines they were promised in 1991?” SANJAY KOTHARI Vice Chairman, KGK Diamonds “You can’t put money into the earth without (being sure of) getting something out of it. We would prefer to expand in Brazil”