New Delhi/Mumbai: India’s environment ministry, after studying for six months the Shah commission's report on illegal mining in Odisha that recommends 60,000 crore should be recovered from miners, on Thursday signed off on a proposal directing the state government to initiate action against the firms involved—including large Indian companies that are part of the Tata and Aditya Birla groups.

If the state government acts on the controversial report, it will affect iron ore production in a state that is India’s largest producer of the mineral and which supplies it to several steel plants in India and outside. In 2012-13, Odisha accounted for nearly 45% of India’s total iron ore production of 143 million tonnes (mt), according to OreTeam, an iron ore and steel information portal.

The state government’s action, when it happens, could hit steel companies hard.

Interestingly, the report by the commission, headed by retired Supreme Court judge M.B. Shah, blamed both the Union and the state governments for rampant illegal mining, dating back to the 1990s.

The environment ministry’s proposal to the state government, headed by the Biju Janata Dal, which is not part of or allied with the ruling United Progressive Alliance (UPA), will involve, in some cases, issuing so-called show-cause notices to cancel mining leases, according to a document reviewed by Mint.

The ministry’s move could revive the development vs environment debate that has played out almost over the entire tenure of the UPA’s rule since 2004. Companies and industry lobbies have blamed former environment ministers Jairam Ramesh and Jayanthi Natarajan for ignoring developmental objectives for dubious environmental reasons. Environmentalists blame current (and new) environment minister M. Veerappa Moily for ignoring environmental concerns and clearing industrial projects indiscriminately.

Any action by Odisha could affect steel companies such as Tata Steel Ltd, Jindal Steel and Power Ltd (JSPL) and Bhushan Steel Ltd that have operations in the state and JSW Steel Ltd that procures iron ore from mines in the state. Other prominent mining companies that have operations in Odisha include the unit of UK’s Stemcor Holdings Ltd that is trying to sell its assets, as well as Aditya Birla group’s Essel Mining and Industries Ltd that has two iron ore mines.

“We are not aware of the content of the report and, therefore, are not in a position to comment in respect of the same," said a spokesperson for JSPL.

None of the other companies responded to an email questionnaire sent to them on Thursday evening. Their spokespersons said they did not have immediate reactions.

“Odisha has been under a cloud. If there is any cut in production (of iron ore), it will hurt corporate valuations, and share prices also," said Alok Agarwal, head of research-institutional equity, at Networth Stock Broking Ltd. “More regulations could mean less production and if that happens, companies may have to import iron ore and that would lead to higher costs."

The document detailing the environment ministry’s directive said a letter had been sent to the “principal secretary, state department of environment requesting the state government to take legal action against 75 mining leases exceeding the production capacity of iron ore and manganese ore."

This official will also be requested to clarify the reasons for a delay in filing complaints in courts by the state government under section 19 of the Environment (Protection) Act, the document added.

According to the document, a show-cause notice should be issued to all leases for cancellation of environment clearances on the grounds that the mining lease is located within 10km of the Similipal National Park.

The environment ministry will also direct the additional principal chief conservator of forests at its regional office in Bhubaneswar to ascertain whether the 74 mines that were accorded environment clearance by the ministry have adhered to the conditions imposed at the time of granting the clearances, the document said.

The Shah Commission report has highlighted a number of irregularities and violations under the Environment (Protection) Act and the Forest Conservation Act. The commission was set up in 2010 to inquire and determine the impact of illegal mining of iron ore and manganese ore in the country and the losses arising on account of it. It has so far submitted reports on Goa, Odisha, and Jharkand. Its term ended in October.

The commission’s report has not been tabled before Parliament and it will be submitted along with an action taken report (ATR).

In 2012-13, Odisha produced 64.31 million tonnes (mt) of iron ore, down almost 5% from the previous year’s 67.41 mt, according to data from OreTeam. Exports from the state stood at 4.34 mt in 2012-13, down over 66% from the previous year’s 12.86 mt.

The state’s production has tumbled from its peak of 81 mt in 2009-10, as it started cracking down on instances of illegal mining, even as environmentalists and the media focused on reports of illegal mining in Karnataka and Goa, and the environmental cost of this.

Mining was banned in Karnataka in 2011 by the Supreme Court and then restarted in a regulated manner in mid-2013, but full-fledged production in the state is yet to resume with many miners still waiting for the necessary clearances. The Supreme Court banned mining in Goa in 2012 even as it hears a case on the issue. As a result of this legal intervention, iron ore production in India in 2012-13 fell to 143 mt, down from 177 mt the previous year, and a peak of 226 mt in 2009-10, according to data from OreTeam.

The environment ministry also wants state government officials to clarify whether Odisha prepared any regional wildlife protection and conservation plan for the area. “Views have also been sought on whether any condition for protecting and conservation of wildlife should have been stipulated in the ECs (environment clearances) issued to 56 mine leases," the document reviewed by Mint said.

The member secretary of Odisha State Pollution Control Board will be directed to monitor the level of pollution and officials at the regional office of the ministry will be requested to submit a report about discrepancies in information given by the project developers at the time of seeking environmental clearance, and the need for revisiting these clearances.

Investors will see if companies with captive mines such as Tata Steel, Steel Authority of India Ltd and JSPL are clubbed with other miners, said Giriraj Daga, a senior analyst at Nirmal Bang Equities Pvt. Ltd.

“There is no precedent of how captive miners were treated in Karnataka and Goa so we will have to see what happens in Odisha to these companies," Daga said. “Companies such as Essar and JSW sourced iron ore from other states so they might not be impacted."

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