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 CEC report said that the new e-platform based system will ensure iron ore transactions take place in a “transparent” manner and “there is no under-invoicing of sale and purchase and consequently loss of revenue by under-payment of royalty and taxes does not take place”.