17 AUG, 2012, ET BUREAU
The Supreme Court has reportedly asked mining major NMDC to firm up e-auction of iron ore in Karnataka. The move underscores the need to bring about transparency in mining, pricing and evacuation of ore across India. What is warranted is a thorough overhaul of market design in ore mining and sales, along with a legislative revamp for credible reforms. Now, following serious allegations of rampant illegal ore excavation in the state, the apex court last year banned mining outright, but has since relaxed its order.
NMDC has got the go-ahead for limited operations, and several mining firms now need to fulfil tough conditions on resettlement and rehabilitation to proceed. The problem now, it seems, is that while NMDC can produce one million tonnes of ore per month, it cannot store its output: which is why it wants the court to allow auctions. In chalking out the norms, what is vital is to mandate that domestic iron ore prices reflect international scarcity value. Domestic prices of steel, aluminium and so on have long been linked to global rates and ore prices must do so post-haste.
While e-auctions can bring about price discovery in the short term, for longer-term contracts, it would make sense to benchmark rates to those quoted by Japanese steel majors, who source all their ore requirements from abroad. In parallel, what is also required is proactive policy to hive off captive mining operations to induce arm'slength ore pricing for all domestic steel producers.
The proper pricing of ore would actually incentivise valueadded steel products. In tandem, we need to have up-todate legislation in mining and minerals. The draft Mines and Minerals (Development and Regulation) Bill, 2011, does have a provision for awarding new mining leases on the basis of bidding. It would make sense to specify revenue-share as the bid parameter. Otherwise, open-ended bidding may turn out to be perverse incentive for global mining majors to commit heavily simply to financialise the commodities in the future. With our large proven reserves of over 13 billion tonnes of ferrous ore, we need genuine bids that remove distortions economy-wide.
The Supreme Court has reportedly asked mining major NMDC to firm up e-auction of iron ore in Karnataka. The move underscores the need to bring about transparency in mining, pricing and evacuation of ore across India. What is warranted is a thorough overhaul of market design in ore mining and sales, along with a legislative revamp for credible reforms. Now, following serious allegations of rampant illegal ore excavation in the state, the apex court last year banned mining outright, but has since relaxed its order.
NMDC has got the go-ahead for limited operations, and several mining firms now need to fulfil tough conditions on resettlement and rehabilitation to proceed. The problem now, it seems, is that while NMDC can produce one million tonnes of ore per month, it cannot store its output: which is why it wants the court to allow auctions. In chalking out the norms, what is vital is to mandate that domestic iron ore prices reflect international scarcity value. Domestic prices of steel, aluminium and so on have long been linked to global rates and ore prices must do so post-haste.
While e-auctions can bring about price discovery in the short term, for longer-term contracts, it would make sense to benchmark rates to those quoted by Japanese steel majors, who source all their ore requirements from abroad. In parallel, what is also required is proactive policy to hive off captive mining operations to induce arm'slength ore pricing for all domestic steel producers.
The proper pricing of ore would actually incentivise valueadded steel products. In tandem, we need to have up-todate legislation in mining and minerals. The draft Mines and Minerals (Development and Regulation) Bill, 2011, does have a provision for awarding new mining leases on the basis of bidding. It would make sense to specify revenue-share as the bid parameter. Otherwise, open-ended bidding may turn out to be perverse incentive for global mining majors to commit heavily simply to financialise the commodities in the future. With our large proven reserves of over 13 billion tonnes of ferrous ore, we need genuine bids that remove distortions economy-wide.
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