A Supreme Court-appointed panel has
recommended replacing the current e-auction of iron ore mining in Karnataka
with an alternative system to enable mineral producers and steel companies to
sign long-term supply contracts, improve margins, check under-pricing and raise
state government revenues.
The Centrally Empowered Committee
(CEC), which is currently overseeing the mineral’s auction in the southern
state, has told the SC that the present system of e-auction be replaced by a
state government-monitored system.
In its September 2, 2011 order, the
Supreme Court had appointed a CEC to oversee the e-auction of iron ore from
Karnataka. The committee had, in turn, formed a monitoring committee to carry
out the orders.
In a report submitted to the Supreme
Court last month, the CEC has proposed that the new system will work on the
lines of an online marketplace allowing iron ore producers and end-users such
as steel companies to ink long-term deals in a government-monitored transparent
structure.
Such a system will also rule out
under-pricing by the iron ore producers that can potentially distort the market.
The CEC report comes after the
Federation of Indian Mineral Industries (FIMI), a mining industry body, moved
the Supreme Court seeking a halt on e-auction for sale of iron ores in
Karnataka. The court had asked CEC to reply to FIMI’s plea.
The court had ordered e-auctions of the
mineral monitored and overseen by the CEC amid widespread allegation of illegal
mining and depletion of forest reserves in the state.
Small and local private miners,
however, have alleged that the e-auction mechanism in Karnataka was restrictive
with one dominant supplier –state-owned NMDC--limiting free and fair price
discovery.
A petition filed in the Karnataka High
Court by Samaj Parivarthana Samudaya has alleged that the base price set by
NMDC in Karnataka e-auctions are at a substantial discount to the international
iron ore prices.
For instance, it said that NMDC’s
landed ore has averaged over Rs 2,000 per tonne. The local mining industry is
of the view that the artificially low prices set by NMDC is hurting smaller mining
players in the state, leading to pile up of inventory.
NMDC said that the price discovery
system under the e-auction route is transparent.
“Pricing of iron ore, either by NMDC or
small miners, is set by the companies themselves based on market dynamics.
NMDC, being the only PSU in merchant mining, follows a transparent pricing
system, and prices are set on a monthly basis. In Karnataka, all miners are
free to set their floor prices of iron ore,” NMDC told HT in an emailed
response.
The new method that CEC has proposed
will provide for “system of online checks and balances to ensure that sale and
purchase has not taken place substantially below the market value,” the CEC
report of April 28, which HT has reviewed, said.
Under the proposed system, the buyer-seller
agreements will be recorded online. Sellers will have to disclose the minimum
acceptable price and product details including moisture and alumina content in
iron ore. Bids offered by buyers will be put up on a real-time basis.
The Hindustan Times, New Delhi, 9th May, 2016, Monday.
