Odisha lost ₹22,400cr in mining revenue due to undervaluing of iron ore grades: CAG
The CAG found that the state government lost at least ₹22,392 cr in mining revenue due to mining leaseholders undervaluing the grade of ore mined, mined in excess of the mining plan
Odisha lost about ₹22,400 crore in mining revenue as leaseholders undervalued the grade of ore mined between 2015 and 2022, in excess of the mining plan as well as misreporting the quality iron ore, a performance audit by the Comptroller and Auditor General (CAG) has revealed.
The CAG which did the performance audit of “Systems and Controls in Assessment and Collection of Revenue from Major Minerals” with a focus on examining issues relating to grant and extension of mining leases/ permits/licences for extraction of minerals for the period between 2015 and 2022, found that the state government lost at least ₹22,392 crore in mining revenue due to mining leaseholders undervaluing the grade of ore mined, mined in excess of the mining plan as well as misreporting the quality iron ore.
Of the ₹22,392 crore that the state lost, ₹10,294 crore or half of the total loss in mining revenue, was due to 20 leaseholders showing most of their mined ores as “screened iron ore fines” in which the ores are small and are considered less desirable in steel plants as those attracted lower royalty compared to normal iron ore fines that are bigger in size and attract higher royalty due to a state government order in 2010.
The state steel and mines department in 2010 had issued an order under which the government charged higher royalty for “crushed fines” but charged lower royalty for “screened fines”.
After this notification, there was an abnormal increase in the reported production of screened fines (having lower royalty) and declining trend in reported production of crushed fines from the year 2010-2011, which indicated a significant risk of misreporting of the “crushed fines”, leading to avoidance in payment of higher royalty and premium.
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Out of the 14 mines for which production data for the period prior to 2010 was available, seven mines had not reported any production of screened fines, whereas three mines had reported the same as being less than 7%, one mine as 12%, and only 3 mines as between 23-42%.
However, the proportion of screened fines produced from the same mines increased from 2010-11 onwards, which is the year when the order of the state government was issued.
By 2021-22, out of the 12 active mines, the reported proportion of screened fines ranged from 60% to as high as 82% in the case of 10 mines, 44%, for one mine; and 27%, for another mine revealing significant decrease in reporting of crushed fines from the production pattern of crushed and screened fines as prevalent before the order.
The CAG also found that there was an abrupt and abnormal decline in the grade of iron-ore soon after those were leased out in auction in 2020 leading to loss of mining revenue of ₹4,162 crore between 2020 and 2022. Though more than 83% production was reported in the grade of 62-65% iron before 2020 when the auctions began, the same came down to 16% in the two years after auction (2020-2022).
The mines from where higher grade of iron ore was available before 2020 auction, post auction those mines reported higher percentage of lower grade iron ore (ore having less than 60% Fe) from 11% to more than 60%.
In an iron-ore mine under Joda Circle of Keonjhar district, the average production of iron ore with grades above 60% Fe was about 77% before auction, but after auction, it reduced to 9.88% in 2020-21 and further reduced to zero in 2021-22 after new lessee started operating the mine.
“It is highly improbable that the grades of mineral reserves, produced from the auctioned mines, would witness an abrupt decline within a short period of one or two years. Such a significant and sharp decline in the grade of iron-ore indicated a significant risk that the new lessees were misreporting the grade of iron-ore produced, in order to avoid higher royalty and premium payable on higher grades. For the six test-checked mines, changes in reported grades of production of lumps and fines after auction, as compared to the consistent pattern in the grade of production, as reported by the older lessees, have consequently resulted in a revenue loss,” the CAG report said.
The CAG also flagged the loss in mining revenue as leaseholders mined in excess of the limits stipulated in the approved mining plans with at least 8 iron ore mines accounting for loss of ₹3,618.50 crore.
Similarly, the state lost mining revenue worth ₹1,700 crore as leaseholders mined beyond limits of environmental clearances. The CAG also pointed out loss of ₹1,473 crore of mining revenue as 1.48 crore tonne of iron ore was transported through checkgates and weighbridges without e-passes.
A response from director of mining of Odisha government as well as deputy director of mines of the circles where the losses were reported is awaited on the CAG report and the copy will be updated.
HT had contacted them for their response.
The CAG however has advised the government to fix responsibility on the officers who recommended extension of the lease period despite objections were raised by multiple departments on irregularities committed by the lessees and carry out a complete and timely investigation across all auctioned mines into the sudden reporting of lower grades of iron-ore to ascertain willful or deliberate misreporting in order to avoid payment of higher royalty and premium.