Whose Iron Ore is it anyway?

Mohan Guruswamy

Mohan Guruswamy

Mohan Guruswamy is Chairman and founder of Centre for Policy Alternatives, New Delhi, India. He has over three decades of experience in government, industry and academia. He can be contacted at mohanguru[at]gmail.com.

For decades the royalty on Iron Ore was a meager Rs.27 per ton. After the troubles in the Adivasi homelands intensified, the Government of India woke up to the realization that the exploitation cannot go on as before and in 2009 it increased the royalty to 10% of the sales price. It is now proposed to raise this to 15%. Because of this there is now a huge orchestrated campaign against this and the PR machineries of the big ore and metals companies are working overtime to have this rolled back. We know from experience that governments are always susceptible to the blandishments of the well heeled. But who is there to speak for the major stakeholders in the game – the Adivasi’s?

The exploitation of the Adivasi homelands for their mineral riches and always to the detriment of the Adivasi people, has stoked the biggest and most widespread insurgency this country has known. The Adivasi revolts predate the advent of the Naxalites by more than a couple of centuries. In just the Rampa region of East Godavari district in AP more than a dozen tribal revolts occurred between 1770 and 1924.

In the early years of colonization, no other community in India offered such heroic resistance to British rule or faced such tragic consequences, as did the numerous Adivasi communities of now Jharkhand, Chhattisgarh, Orissa and Bengal. In 1772, the Paharia revolt broke out which was followed by a five-year uprising led by Tilka Manjhi who was hanged in Bhagalpur in 1785. The Tamar and Munda revolts followed. In the next two decades, revolts took place in Singhbhum, Gumla, Birbhum, Bankura, Manbhoom and Palamau, followed by the great Kol Risings of 1832 and the Khewar and Bhumij revolts (1832-34). In 1855, the Santhals waged war against the permanent settlement of Lord Cornwallis, and a year later, numerous Adivasi leaders played key roles in the 1857 war of independence.

Since the mid 1970’s a fire of discontent has been raging in the Adivasi homelands in Maharashtra, Madhya Pradesh, Telangana, Andhra Pradesh, Chhattisgarh, Orissa and Jharkhand. Much of this anger relates to how the big mining interests have ravaged the Adivasi homelands, and how the people have been forced out of their lands. Worse, little of the royalty extracted by the State trickles down to the people whose homelands are being destroyed.

That the increase in royalty on iron ore from 10% to 15% would lift the cost for miners by 150 to 250 rupees per ton ($2.50-$4.00) is plausible. Dhruv Goel, managing partner at industry consultancy SteelMint says: “But they will not be able it pass it on completely to steelmakers for the reason that imports will be cheaper and people will prefer imports over domestic ore.” This is just nonsense.

In 2009 when it was raised to 10% of the market price, in reality this was raised to Rs.270 per ton, when it should have been twice that or more. The cost of extraction is estimated to be not more than Rs.350 per ton. The export price has never fallen below Rs.5000 per ton. In February 2010 the landed price per ton of Indian iron ore in China was $128, which then was around Rs.6000 per ton. At present the purchase prices are around $100, which is still about Rs.6000 per ton. Thus, iron ore margins accruing to the miners and steel companies remain consistent and huge.
The economics of steel manufacturing has been made explicit by the Business World of July 31, 2010 in its story on the financial dire straits of Ispat Industries. This insightful article details how the Mittal owned Ispat could never earn profits unless it has its own “captive” mines like Tata Steel, SAIL and others. And in doing so lets the cat out of the bag. The case is simple. Ispat spends about half its revenue on iron ore. Tata Steel, SAIL and others like Jindal, Essar spend about 20%. With captive mines Ispat’s input cost of iron ore will be 70-80% cheaper. At present Ispat uses 7 million tons of iron ore annually, of which the public sector NMDC supplies 5 million tons. The average price of this iron ore is about Rs. 6000 per ton, while if derived from ‘captive” mines it would cost it merely about Rs. 500-550 per ton. Quite clearly the margins on iron ore are huge and the miners, steelmakers or merchants, are raking in huge profits.
The implications of this price difference should be obvious. What perhaps is not so obvious to most is that this is essentially a profit extracted from the nation’s mineral reserves, which mostly lies in the Adivasi homelands and if one is to go by the Constitution, the rights and royalty rates are theirs to give and fix. The irony is that it is this low cost of iron ore extracted from their Adivasi homeland mines that enables steelmakers like Tata Steel and Essar, and miners like NMDC, not only to be among the most profitable companies in India, but also gives it the financial muscle to make huge overseas acquisitions. Ultimately, it is the poor Adivasi who pays for it with his home and hearth and gets no credit for it! Either, from the State, which connives in their exploitation, or the industry that lord over their resources
How have the Adivasi’s benefited by this “industrialization?” We have before us the experience of the public sector navaratna National Mineral Development Corporation’s (NMDC) giant iron ore extraction project at Bailladilla in Bastar’s Dantewara district. The locals have got nothing but the most menial jobs and in return their hitherto pristine environment is ravaged beyond recognition with the streams choked with the debris of excavation.
The Supreme Court while dealing with a case relating to the acquisition of tribal land in Sundergarh district of Orissa by the Mahanadi Coalfields Ltd., a Government of India enterprise, found that people whose lands were taken two decades ago were still not paid any compensation. In a stunning rebuke to the government a bench of the Court comprising of Justices Aftab Alam and BS Mohanty termed its development policies “blinkered” and held it responsible for “fuelling extreme discontent and giving rise to Naxalism and militancy.”
The Court also referred to the large-scale displacement of tribal’s from forest land in the name of mining and development and said that the “non-settlement of their rights and non-provision of timely compensation of their lost land has created the worst kind of hatred among them towards development, possible giving rise to extremism.”