Bellary in crisis
The economy of the mineral-rich town has been left reeling after Karnataka's ban on export of iron ore.
When Indian Railways decided to carve out the new zone of South Western Railway in 2003, it chose Hubli in Karnataka as the headquarters. What tilted the scales in Hubli's favour was the region's huge iron ore traffic. At its peak, the Hubli division earned close to Rs 12 crore a day carrying iron ore, making it one of the top five freight-earning divisions of Indian Railways.
Some 320 km away, at the mining capital of Hospet in Bellary district, about 2,500 trucks carried thousands of tonnes of ore to different ports. And, in faraway Chennai, the port handled between five and eight million tonnes of Bellary ore a month. The prosperity shows. The Bellary-Koppal region has two private airports, eight helicopters and six aircraft. Mining firms own one airport, three aircraft and all the helicopters; JSW Steel owns the other three aircraft and one airport. Some of the costliest foreign cars can be seen on Hospet's roads.
But a July 26 order by the Karnataka government banning the export of iron ore crippled Bellary's economy. Indian Railways' income from ore transport is down by two-thirds and most trucks are idling. The crackdown on exports has cooled prices of ore to around Rs 2,700 a tonne now, from the high of Rs 3,800. Most mining firms have suspended activity and sent workers home, as they wait for an end to the ban either by courts or the state.
Exporters say that over 5,000 workers have been affected. And here is the big picture. India's iron ore exports have almost halved to 3.03 MT in September. The same month, Chennai port handled only 0.20 MT. While the mining firms are livid, the steel industry is understandably jubilant. Steelmakers such as JSW Steel, Kalyani Steels, BMM Ispat, among others, have been lobbying for preference in the grant of mining lease arguing that the precious raw material for steel cannot be exported, given the growing domestic demand. They point out that India will become the world's secondlargest steel producer by 2012, after China, more than doubling its capacity to 124 MT.
Chief Minister B.S. Yeddyurappa defends the ban. "The mineral policy of the state is to use the mineral wealth for value addition in the state, '' he says. Any immediate economic impact in the district, like job losses, he argues, would only be temporary and offset in due course with fresh investments in steel mills (see Ban is Meant to Curb Illegal Mining). At a recent meeting with Prime Minister Manmohan Singh, Yeddyurappa called for a national ban on export of iron ore.
There is another reason for the ban. It was, officials say, the last option for the government to check the rampant illegal mining in the region, which had dirtied the ruling Bharatiya Janata Party's image. A senior minister remarked: "After all, the government was earning a measly royalty of about Rs 380 crore a year, which we can afford to forgo in return for preserving our mineral wealth."
In 2009-10, while Karnataka permitted six million tonnes of iron ore exports, the actual quantity that went out of the country was more than double, at 13.1 MT. Yeddyurappa points out that the amount of ore exported illegally in the last seven years from Karnataka was more than the export permitted by the state.
The mining industry, however, has a different point of view. India's steel mills, they say, can absorb only half of the ore produced annually. In 2009-10, out of 218 MT produced, only 90 MT were used and the rest exported.
"To put up a steel plant, you need water. Where is the water here? If it were so simple, SAIL would have come here long ago,'' says Shrenik Baldota, Executive Director of MSPL Ltd, referring to Steel Authority of India Ltd, the government-owned steel major. MSPL is India's leading iron ore exporter in the private sector. "If India is not making steel on its own, the reasons are economic. It is often cheaper to import steel rather than make it locally by transporting ores over long distances,'' says a miner.
Meanwhile, Karnataka's mining industry, which accounts for a quarter of India's annual exports to China, the largest global market for iron ore, has lost business to Brazil and Australia. "In the last three months, miners in the two countries got three million tonnes of extra business,'' says Meda Venkataiah, Executive Director for Mining at MSPL. There are 93 mines in the Hospet-Sandur region, within 200 sq. km. Of these, 69 mines are operational, and about 70 per cent of the ore produced by them was being exported. As many as 16 banks, including State Bank of India, or SBI, ICICI Bank and Axis Bank, have set up branches in the town and have large exposure to the mining business.
"Since August, our credit offtake has come down and we do have defaults,'' says an SBI officer, while adding that the bank has decided not to act on fresh applications for loans from mining companies until some clarity on exports emerges. The tussle between the mining companies and the government is now pending before the Karnataka High Court. For the moment, though, the government seems determined to stay the course.
According to Yeddyurappa, eight companies, including ArcelorMittal, have taken steps to build plants with a combined capacity of 22 MT per annum, or MTPA, in the Bellary region. And, more importantly for the state, the ban, even critics admit, has illegal miners on the run.
The Bellary region has been badly bruised by mining restrictions. But whether it is a short-term pain or a problem that will linger longer will depend on the courts and the new steel projects that the government expects to come in.
Some 320 km away, at the mining capital of Hospet in Bellary district, about 2,500 trucks carried thousands of tonnes of ore to different ports. And, in faraway Chennai, the port handled between five and eight million tonnes of Bellary ore a month. The prosperity shows. The Bellary-Koppal region has two private airports, eight helicopters and six aircraft. Mining firms own one airport, three aircraft and all the helicopters; JSW Steel owns the other three aircraft and one airport. Some of the costliest foreign cars can be seen on Hospet's roads.
But a July 26 order by the Karnataka government banning the export of iron ore crippled Bellary's economy. Indian Railways' income from ore transport is down by two-thirds and most trucks are idling. The crackdown on exports has cooled prices of ore to around Rs 2,700 a tonne now, from the high of Rs 3,800. Most mining firms have suspended activity and sent workers home, as they wait for an end to the ban either by courts or the state.
Iron ore export was banned…
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Chief Minister B.S. Yeddyurappa defends the ban. "The mineral policy of the state is to use the mineral wealth for value addition in the state, '' he says. Any immediate economic impact in the district, like job losses, he argues, would only be temporary and offset in due course with fresh investments in steel mills (see Ban is Meant to Curb Illegal Mining). At a recent meeting with Prime Minister Manmohan Singh, Yeddyurappa called for a national ban on export of iron ore.
There is another reason for the ban. It was, officials say, the last option for the government to check the rampant illegal mining in the region, which had dirtied the ruling Bharatiya Janata Party's image. A senior minister remarked: "After all, the government was earning a measly royalty of about Rs 380 crore a year, which we can afford to forgo in return for preserving our mineral wealth."
In 2009-10, while Karnataka permitted six million tonnes of iron ore exports, the actual quantity that went out of the country was more than double, at 13.1 MT. Yeddyurappa points out that the amount of ore exported illegally in the last seven years from Karnataka was more than the export permitted by the state.
The mining industry, however, has a different point of view. India's steel mills, they say, can absorb only half of the ore produced annually. In 2009-10, out of 218 MT produced, only 90 MT were used and the rest exported.
 B.S. Yeddyurappa Karnataka's Chief Minister B.S. Yeddyurappa tells Business Today that new investments in steel in the Bellary region will use locallyproduced iron ore and create employment. Edited excerpts: On the impact of a prolonged ban on the local economy. The ban is only a temporary measure to curb illegal mining and make raw material available to (local) industries. Till the mining activities are properly regulated and the lacunae plugged, we have requested the court to continue with the ban. Legitimate mining activities are very much on and the steel units in and around Bellary are using the ore. Big steel companies have come forward to set up steel units, which would create jobs. ArcelorMittal, Brahmani Steels and POSCO are among them. These companies will bring in the latest technology. Bellary and the neighbouring areas will be among the most prosperous districts. On the mounting job losses in the region. The mining activities have not stopped. So, it is not correct to say jobs have been lost. We are assessing the situation. This temporary phase will pass. On whether new and existing steel mills in Karnataka will get mining leases. The areas available are taken up for grant of mining lease. Most industries which have signed MoUs during the global investors' meet (in June) have applied for leases. They will be considered as per the law and the state's mineral policy. The process will be completed in a month or two. On new steel mills coming up in the region. From January 2009, we have approved 34 proposals of steel mills with a production capacity of 73 million tonnes per annum, or MTPA. As for the Bellary region (Bellary and Koppal districts), steel mills with production capacity of 41 MTPA have been approved. After the June meet, eight steel mills with a production capacity of 22 MTPA have taken steps to implement their projects. The proposal of ArcelorMittal is progressing to our satisfaction. |
"To put up a steel plant, you need water. Where is the water here? If it were so simple, SAIL would have come here long ago,'' says Shrenik Baldota, Executive Director of MSPL Ltd, referring to Steel Authority of India Ltd, the government-owned steel major. MSPL is India's leading iron ore exporter in the private sector. "If India is not making steel on its own, the reasons are economic. It is often cheaper to import steel rather than make it locally by transporting ores over long distances,'' says a miner.
Meanwhile, Karnataka's mining industry, which accounts for a quarter of India's annual exports to China, the largest global market for iron ore, has lost business to Brazil and Australia. "In the last three months, miners in the two countries got three million tonnes of extra business,'' says Meda Venkataiah, Executive Director for Mining at MSPL. There are 93 mines in the Hospet-Sandur region, within 200 sq. km. Of these, 69 mines are operational, and about 70 per cent of the ore produced by them was being exported. As many as 16 banks, including State Bank of India, or SBI, ICICI Bank and Axis Bank, have set up branches in the town and have large exposure to the mining business.
"Since August, our credit offtake has come down and we do have defaults,'' says an SBI officer, while adding that the bank has decided not to act on fresh applications for loans from mining companies until some clarity on exports emerges. The tussle between the mining companies and the government is now pending before the Karnataka High Court. For the moment, though, the government seems determined to stay the course.
According to Yeddyurappa, eight companies, including ArcelorMittal, have taken steps to build plants with a combined capacity of 22 MT per annum, or MTPA, in the Bellary region. And, more importantly for the state, the ban, even critics admit, has illegal miners on the run.
The Bellary region has been badly bruised by mining restrictions. But whether it is a short-term pain or a problem that will linger longer will depend on the courts and the new steel projects that the government expects to come in.
