New Delhi: The Supreme Court on Tuesday lifted the nine-month ban on iron ore exports from Karnataka, a move that could have repercussions on the already fragile domestic polity of the state.
Export of the commodity, a key input in the manufacture of steel, was banned by the state government to tackle the problem of illegal mining of iron ore in Karnataka, ruled by the Bharatiya Janata Party (BJP). It also came about during an internal face-off between chief minister B.S. Yeddyurappa and dissident legislators, some of whom drew support from the mining lobby.
Yeddyurappa, who enjoys a slim majority in the assembly, declined comment on the apex court’s order, saying he had to study it in detail. The mining lobby is a powerful interest group in the state’s politics and is seen as a key funder for political activities, with mine owners being present in all the three major parties in the state—the BJP, the Congress and the Janata Dal (Secular).
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The ban affected operations at around 100 mines said to employ around 100,000 people and also forced up international prices of iron ore.
“It is a positive sign, but it is a dicey situation. People will wait till the hearing is concluded,” said Noor Ahmed, president of the Bellary-Hospet sector Mine Owners’ Association, which represents 45 mines in the mineral-rich zone of Karnataka that were forced to halve their output owing to the ban.
The court said its order that lifted the ban from 20 April was an interim one and listed the case for further hearing in the first week of May. The government has been given two weeks to implement the new mechanism it has created to prevent illegal mining, after the state’s counsel told the court on that although a new law was passed, it was not yet possible to implement it.
The state notified the Karnataka Prevention of Illegal Mining, Transportation and Storage of Minerals Act, 2010, a new mechanism to prevent illegal mining, a problem that has been plaguing the state for over a decade, particularly in the Bellary-Hospet region.
Karnataka had imposed a ban on exports of iron ore from 10 ports in the state in July-end and subsequently banned movement of iron ore meant for exports citing a drive against illegal mining and the need to preserve the resource for local steel makers.
Mining companies in Karnataka, including MSPL Ltd, Sesa Goa Ltd, SB Minerals and Mineral Enterprises Ltd, moved the Karnataka high court challenging the constitutional validity of the government’s move last year, but lost the case in November, following which they filed a petition in the Supreme Court.
The mining companies approached the Supreme Court claiming an infringement of their right to livelihood under Article 19(1)(g).
Traders said iron ore prices had not reacted as the market would wait for more clarity on the case as also to gauge Chinese demand, but chances are they would not move much higher on the prospects of improved availability from India.
“The supply will improve. At least prices will not go up,” said Satyajit Singh, director (marketing) at Sinosteel India Pvt. Ltd, a Chinese trading house based in New Delhi. “If the ban is indeed lifted, it would come at a good time as Goa would close for the monsoon and Karnataka would be able to fill in for it.”
India, the world’s third largest iron ore supplier, exported 117.37 million tonnes (mt) of iron ore from a total output of 226 mt in 2009-10 mainly to China that houses the world’s largest steel industry. In 2010-11, however, exports are expected to have dropped by around 20% owing to the ban in Karnataka.
Chinese demand for the mineral, though erratic, has been strong since last year with steel makers there needing more ore as infrastructure gets built, as well as to export the alloy with global demand expected to revive amid a slow economic recovery.
On Tuesday, prices for the benchmark grade of iron ore with 63.5% iron content stood at $185 (Rs 8,233) a tonne, including freight, almost around the levels seen in 2008 ahead of the global economic downturn. At the beginning of this year, prices had almost touched $200 a tonne on heavy demand from China.
“You can’t just switch off and switch on exports,” said R.K. Sharma, secretary general of the Federation of Indian Mineral Industries. “It is going to be difficult as now there is a 20% export duty imposed in the budget and railway freight rates have gone up. Iron ore exports at current prices are not viable.”
But MSPL, one of the petitioners, is optimistic. “Exports can come back to original levels,” said Rahul Baldota, executive director of the company.
The lifting of the ban could displease domestic steel companies that have been persistent in their demand to stop exports of iron ore so that more of the commodity is available for local use and prices remain low. Steel makers will lose their bargaining power if iron ore miners have the choice to export their goods.
“The Lokayuta’s report of 18 December 2008 has engaged the attention of the state government,” the Supreme Court said, urging Karnataka to implement the recommendations made in the report. Santosh Hegde, the Lokayukta (state vigilance officer), had been asked to probe illegal mining in the state.
Graphic by Yogesh Kumar/Mint
Venkatesha Babu in Bangalore contributed to this story.