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Steel makers sue Jharkhand govt for breaking promises

Steel makers sue Jharkhand govt for breaking promises
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First Published: Mon, May 28 2007. 06 49 AM IST
Updated: Mon, May 28 2007. 06 49 AM IST
The quest for iron ore is turning the state of Jharkhand into a legal minefield.
In April, at least four companies with ambitions of setting up integrated steel plants and sponge iron mills moved the Supreme Court against the state and the central governments for going back on promises made in initial investment agreements and scrapping their applications for mining leases.
The companies initiating legal suits claim they have already gone ahead with investment plans on the assurance of securing iron ore leases in the Ghatkuri mines, located in the Saranda forest of West Singhbhum district of Jharkhand. In 2004, the BJP-led Arjun Munda government had recommended the names of nine companies for leases in the 11,000-hectare Ghatkuri mines to the central government’s mining ministry. Under Indian law, all decisions related to 13 heavy minerals including iron ore and gold need to be cleared by the central government.
In November last year, the Madhu Koda-led United Progressive Alliance (UPA) government in the state withdrew its recommendation and announced that the area would only be reserved for public or public-private ventures in the future. Koda also holds the mines portfolio in the state.
Six of the nine recommended companies went to the Jharkhand high court first, which subsequently passed an order that the forest would need to be “de-reserved” before the state government could recommend the issual of fresh mining leases. The reservation was made by two orders, issued in 1962 and 1969. Four of the companies then moved the Supreme Court.
In the first week of May, the Supreme Court, on the basis of the petitions filed by the four companies—Adhunik Alloys and Power Ltd, Ispat Industries Ltd, Monnet Ispat and Energy Ltd, and Abhijeet Industries Ltd—passed an interim order restraining the state government from recommending the allotment of mining leases to any third party.
All four companies have appointed high-profile lawyers: Harish Salve and Ashok Desai represent Ispat Industries Ltd and Adhunik Alloys and Power Ltd, respectively; Abhijeet Industries has engaged Rohington Nariman, son of constitutional expert Fali S. Nariman; and the case of Monnet Ispat is being handled by Abhishek Manu Singhvi, spokesman of the Congress party.
Mines and cases
On Monday, a group of ministers of the ruling UPA government at the Centre meets to hear presentations by steel and mining lobbies over the contentious issue of iron ore exports. The ministers will also discuss a section of the policy which states that “value-addition” or steel manufacturing must be done within the bounds of the state where iron ore is found. Irrespective of what the ministers decide,
India’s steel boom (173 deals have been signed around the country to set up steel plants) and the mad rush for iron ore has had one predictable fallout: litigation.
Jharkhand has signed nearly 54 investment agreements (or memoranda of understanding, MoUs) with steel companies since 2004 with promised investments running into Rs2 lakh crore. The companies involved include the world’s largest steel maker Arcelor Mittal, which is setting up a 12 million tonnes (mt) per year plant; Tata Steel Ltd 12 mt; Essar Steel Ltd 6 mt; Jindal Steel and Power Ltd 5 mt; JSW Steel Ltd 12 mt; and Bhushan Power & Steel Ltd 3 mt.
Jharkhand currently has 23% of the country’s iron ore reserves and produces 13.7 mt of the commodity a year. Plants within the state produce 9.4 million tonnes of steel a year, 22.3% of India’s steel production according to data provided by the Jharkhand government.
The state has 42 iron ore leases to issue but as many companies clamour for mines under the state’s 2003 industrial policy resolution, which invited investors with the lure of speedy leases.
The other companies whose applications were recommended by the state government and then withdrawn could also approach the courts. One of them, Prakash Industries Ltd, could do so “in a couple of months”, according to a company executive who did not wish to be named. However, Jharkhand Ispat Pvt. Ltd, which has already spent Rs62 crore of the total Rs200 crore for its proposed sponge iron plant in Ramgarh, 60km from state capital Ranchi, is still undecided whether it will push its case at the Supreme Court, said Abhishek Roongta, the company’s director. Jharkhand Ispat was one of the six companies that had earlier approached the Jharkhand high court.
The application filed by Adhunik on the grounds of promissory estoppel—once the company makes investments and incurs cost, the government cannot retract from its stand—states that the government had signed a second MoU with it last year for increased investments in spite of the knowledge that the area was reserved. The company has already made an investment of Rs250 crore and has employed around 3,500 people for the project. Adhunik, which signed its first investment agreement with the state government in February 2004, plans to build a Rs5,500 crore integrated steel plant in Kandra, near Jamshedpur.
Monet Ispat, which wants to build a 1 mt integrated steel plant and a 280 megawatt power plant, signed an MoU in 2004 too. The Rs7,000 crore Ispat Industries, the fifth largest steel company in the country, applied for a mining lease in 2004 but signed an MoU only in January 2007 to set up a 3 mt a year plant. It has not made any investments in the project so far.
An official close to the development said that the government of Bihar, from which Jharkhand was carved out, had completed a report on de-reserving the area for the private sector in 1999.
“The papers are still with Bihar government and have not been distributed yet following the creation of the state,” he added, requesting that he not be identified.
Jharkhand, created in 2000, has more pressing problems than file-keeping.
Doing business
Ajay Murarka, director of Bimaldeep Steel Ltd, which runs a sponge iron unit and whose application for a lease in Ghatkuri got cancelled along with the rest, said it’s “suicidal” to do business in Jharkhand.
“Every day is a threat to our survival,” said Murarka, who has been receiving threats after he attempted to file an FIR (first information report) when his Ranchi office was ransacked and Rs5.8 lakh stolen, allegedly by security guards from an agency run by a police officer.
“We are waiting for someone to buy our project so that we can move away,” he said. Others contend that there is no reason to go to Jharkhand other than for iron ore.
Patna-based Ujjwal Minerals, which manufactures products for the construction industry and is one of the companies whose application for a mining lease at Ghatukuri lease was cancelled, bought “a small piece of land” on the state’s alluring promise of a mining lease. But the company’s director, Dev Jyoti, said it has not taken the government to court because it’s an expensive proposition for a small company. “Without iron ore is like living without oxygen,” said Jyoti. “It’s useless to go there (Jharkhand) if there is no iron ore.”
Sixteen kilometres to the south of the Ghatkuri mines, Jharkhand and the central government-owned public sector firm Steel Authority of India Ltd are locked in dispute over the Chiria mines, touted as Asia’s largest iron ore mines. The state government has refused to renew four of the nine leases of the steel company on the grounds that its requirement is inflated.
The government wants to lease these mines out to some of the private sector firms with which it has signed investment agreements. Several firms, including Arcelor Mittal, have applied for a block at Chiria.
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First Published: Mon, May 28 2007. 06 49 AM IST