GOA Govt estimates a loss of Rs 3000 crore, 22% of states own revenue

Goa, once India’s largest exporter of low grade iron ore feeding to hundreds of tiny steel mills in China until 2009-10, has imported around 60,000 tonnes of steel making raw material from Australia. Another three vessels containing 40,000 – 50,000 tonnes each are in transit and can hit Goan ports any time soon.

Sponge iron units in Goa that used previously to convert low grade ore (i.e. fines with less than 58% Fe) are starving due to ban on mining imposed by the Union government in 2013 to prevent illegal mineral excavation in the state. Some meagre imports were made by them.

While the ban lifted early this year and also mining licences were renewed, steep decline in iron ore price made resumption in mining unviable. With state’s economy suffering a loss of Rs 3000 crore in addition to other notional losses, miners are in no mood to re-start excavation due to massive taxes and levies which would make the process unviable.

“For 58% Fe, iron ore price is currently prevailing at $28 or Rs 1,800 a tonne, much below the cost of production. With overall levies of a massive 62%, absolute realisation works out to less than Rs 700 a tonne as against the cost of excavation, transportation, barge handling, port charges etc. miners’ total payment outgo comes to around Rs 1,500 a tonne. This eventually means, miners will have to pay over Rs 800 a tonne from their pocket. Thus, re-starting mines makes no sense,” said a senior official with Department of Geology.

Interestingly, the state government is in a hurry. The government has already renewed licences of over 72 miners out of total 96 were in operation at the time of ban. Unfortunately, provisions in the recent passed Mines and Minerals Development and Regulation (MMDR) Amendment Bill, 2015, make resumption of mining unviable.

“We are awaiting some statutory clearances and clarifications which should be in place in the next few months. But given the current market prices combined with the taxes and levies, resumption of mining in the near future seems remote. Even the state is saddled with an inventory of 9 million tonnes which it is unable to auction in absence of takers / bidders in these depressed conditions,” said Shivanand V Salgaocar, managing director of V M Salgaocar Group of companies and President of Goa Mineral Ore Exporters Association (GMOEA).

Worsening the scenario, China has been discouraging import of low grade to save energy resulting into a slowdown in Chinese imports. More so, global miners including Rio Tinto, BHP Billiton and Vale declared that they would continue to make profit till iron ore price falls at $30 a tonne, another 32% decline from the current prevailing price of $44 a tonne. Iron ore price (ex-China) has declined by 63% to trade now at $50 a tonne from $135 a tonne since January 2014.

Steel industry in India also say brnging ore from Goa is unviable for them. Ore-starved JSW Steel finds transportation of iron ore from Goa to its nearest plant in Maharashtra and elsewhere impossible. “We do not have adequate rakes available to transport ore. Coal is another raw material we need to transport from ports to our plants,” Seshagiri Rao, joint managing director and Group Chief Financial Officer, JSW Steel.

“To make mining viable, iron ore price has to rise at least by $20 a tonne. Even if the government withdraws 30% of export duty, mineral excavation in Goa will start only when price firms up,” said Haresh Melwani, Chief Executive Officer, H L Nathurmal & Co, a Goa-based iron ore miner and exporter.

Human resources

• 150,000 dependents on mining, 10% of state population
• 20,000 trucks, 375 barges, 220 mining machineries involving operators, workmen, helpers etc.

Bankers’ exposure

• Rs 850-cr as loan/advances to trucks, barges, mining machinery etc.
• Rs 150-cr as loan/advances of housing / consumer loan

Taxes and levies

• 30% export duty
• 15% royalty
• 10% Goa Permanent Iron ore Fund
• 5% District Mineral Fund
• 2% National Mineral Development Fund
• Total: 62%
• 25% on profit

Economics

• Current price of 58% Fe = $28.50/t or Rs 1800/t (1$ = Rs 63) (Source : OreTeam)
• 62% of taxes and levies = Rs 1116/t
• Actual realisation for miners = Rs 1800 – 1116 = Rs 684 (A)
• Cost of excavation, transportation, filling of barges, VAT, port clearing charges etc. = Rs 1500/t (B)
• Net income (loss) for miners = A-B = (-)Rs 816/t

Loss to Goa economy

• Value of ore produced in 2009-10 of 117 million tonnes x Rs 1800/t = Rs 21060 crore
• Royalty income for state @15% = Rs 3159 crore
• Losses from allied business = Rs 250 crore
• Total loss: Rs 3359 crore
• Govt estimates a loss of Rs 3000 crore, 22% of states own revenue