Proposed rates could raise states’ royalties on iron ore by 567%

Proposed rates could raise states’ royalties on iron ore by 567%

New Delhi: Under new rates proposed by the mining ministry, states’ royalties on iron ore would rise 567%. They will also go up by about 75% and 38%, respectively, for manganese ore and limestone.

The final report, which was prepared by the ministry’s study group, also hikes royalties on lead by 40%.

The group included representatives from five mineral-rich states, including Orissa, Jharkhand and Chhattisgarh. Miners were represented by the Federation of Indian Mineral Industries, which is strongly opposing the new calculation format for royalty on iron ore, a commodity seeing higher prices due to China’s steel demand.

Following the recommendations of the National Mineral Policy and based on complaints that states were not getting their due, the group has recommended abandoning the old system of calculating royalty on iron ore per tonne with a new system based on 10% of the sale price.

But miners say the new method will be complicated as several grades of ore exist. They warn that the new system will lead to litigation as states take the highest grade to maximize royalty. They also point out that states ask for advance royalty and payments are rarely squared off to actual prices.

“It’s a cumbersome process and will be logistically impossible to implement different ex-mine rates for so many ore grades," says mineral industries federation member Basant Poddar, a miner from Karnataka. Ex-mine rates are charged at mine pits, excluding freight and other transport costs.

The Centre fixes royalty rates for 47 major minerals.

To sort out the debate over iron ore grades, the ministry has proposed that either the Indian Bureau of Mines or research institutions agencies, such as the National Council for Applied Economic Research, fix a formula for a benchmark price.

The mines bureau, in its internal note to the mines ministry, has mentioned that miners are profiting from the iron ore boom, but “a reasonable share of increased profits has not accrued to the state government". At present, it costs less than $10 (Rs394) to extract iron ore, but it can sell for $130-135 a tonne; that price range is for freight on board prices to China.

Contrary to allegations by the steel industry that iron ore will decline rapidly with increased exports, the internal note says that India can meet demand and only excess ore, after meeting internal demand, is being exported. “At present, there is no need for a ban on iron ore exports," the note said.