Govt. Incurred Monthly Revenue Loss of Rs.3900Cr. due to lower ex-mines prices by Iron Ore lessees .

Govt. Incurred Monthly Revenue Loss of  Rs.3900Cr. due to lower ex-mines prices by Iron Ore  lessees .
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By Sudhi Ranjan
Bhubaneswar , 05-2-21

  Various malpractices  are adopted by the new lessees of auctioned mines who are  opting all kinds of malpractices to report lower ex-mines prices of iron ore so as to reduce the average sale price published by IBM, and thus reduce the payments like  premium, royalty, DMF and NMET to be made to the State Government of Odisha.

For instance, the average sale price of 62-65%Fe fines in Odisha for Septermber’20 was Rs.2157/tonne, whereas the prevailing market rate was Rs.3100/tonne (hike of 44%). This is because most of these lessees have adopted a novel approach, with a malafide intent,and charge the ASP published by IBM a quarter back from the customer as the current month price, and later when the price for the particular month are published,realise the differential from the same customer. However, this seemingly innocuous approach reduces the ASP of the current month as lower than market price is considered. At the most conservative estimation at premium of 100%IBM price, there was a revenue loss of Rs.934crore at production level of 7.8mt in the month of September alone. This situation will lead to loss of Rs.3900Cr considering prevailing market price of similar grade of Rs.6150/tonne in December’20 (Premium loss:Rs.3155Cr, Royalty loss: Rs.467Cr, DMF loss Rs.311Cr and NMET loss: Rs.62Cr).

  The Indian Bureau of Mines has observed serious discrepancies in the reporting Ex-Mines Prices of some of the mines for the month of October’20 and has requested the State Government vide letter dated 24.12.2020 for examination of returns of lessees with reference to the vouchers of dispatches, sale invoice including GST etc. The IBM has put on hold the declaration of average sale price of lumps and fines other +65%Fe till outcome of the verification.

The above action of the IBM confirms the manipulation of ex-mines prices by the lessees of auctioned mines to compensate their exorbitant quoted premiums of above 100% of IBM price.  The ASP of October and November’20 have not been published which is severely affecting the State Revenue. Further, no proactive actions have been taken by the State Govt to prevent such huge loss of over Rs.3900Cr per month.
   As per the procedure for compilation /calculation of ASP of a mineral/ grade, reporting of lower Ex-Mines Price (EMP) (i) as compared to the EMP reported by other mine(s) for the month or (ii) as compared to the ASP complied and published by IBM for the State for the preceding month (as the case may be) by any mine, results a lower ASP of the mineral / grade in the State for such month of report. It is worth mentioning that a lower ASP cause lesser realization of premium, royalty, DMF and NMET which is an ultimate revenue loss to the State Exchequer.

 In any financial modeling it is unfeasible to have premiums more than average sale price, in addition to paying applicability of 16.8% towards royalty, DMF and NMET. The big corporates have taken almost all mines in recent auction with the intention of having the rules of the game changed by strong policy advocacy pressure on the Government& unfair business practices. As the changes that are being proposed with intent to make the mines viable, like National Mineral Index etc met with heavy opposition and hence are delayed, the high premiums is badly impacting these corporate.

     They adopted unjust practices like booking lower ex-mines prices so as to lower the Average Sales price (ASP),and charging applicable premium from buyers in a different name/ head. The lessees of auctioned mines are violating the rule 42 of the MCR 2016 which has explicitly explained that all the expenditure shall be incorporated in ex-mines sale price.There are numerous attempts being made for lowering the Average Sale Price (ASP) by adopting measures to sell the ore to related parties or sell the ore (lump and fine) at discount and then take the balance in cash. Evidently cash is not visible, but this circular economy is taking shape in our State of Odisha.

 It is alleged that  M/s JSW Steel Limited has been making sale of iron ore from its Nuagaon iron ore mine and Jajang iron ore mine only to limited buyers such Monnet, Bhushan Power and Steel Ltd, its own companies to control prices.
Jajangmine repeatedly reports lower grade while stacking & sampling to reduce the government revenue which belongs to the public.

  Balda iron ore mine of M/s Sirajuddin with premium value of 118% of value of IBM price, is adopting the above methodology by charging premium separately and lowering the ex-mines sale price exclusive of premiums. This malafide practice will affect the computation of average sale price under rule 42(3) and rule 43 of MCR 2016 and directly lowering the revenue collection towards premium, royalty, DMF and NMET. As per the news article published on steelmint on 23.11.2020 states “Meanwhile, miners must also contend with the fact that the Indian Bureau of Mines (IBM) takes almost three months to declare the average prices of iron ore which decides how much royalty they must pay and now how much premium they owe the state. Serajuddin for one has chosen to sell its first half-million tonne of iron ore fines post-auction at Rs 4,000 a tonne allowing buyers to pay the remainder of his premium cost – 118 percent of the average IBM price – as and when IBM's November prices are declared.” This act of Sirajuddin will bring down the ASP of November down by 33% from market rate.
  Under sub-section 1A of section 4 of MMD Act states no person shall transport or store or cause to be transported or stored any mineral otherwise than in accordance with the provisions of this Act and the rules made thereunder. And the provisions of sub-section 1of section 21 of MMDR Act, whoever contravenes the provisions of the above sub-section shall be punishable with imprisonment for a term which may extend to five years and with a fine which may extend to five lakh rupees per hectare of the area.

 Submitting details about the above massive corruption , irregularities and manipulation ," MASS " , a leading people's organisation urged the Govt to take   appropriate action with recovery of Rs.3,900 Crore for penalty towards manipulation of  IBM price may be recovered and penal action under 21(1) of MMDR Act may be initiated.

To check for reoccurrence in the future,
MASS demanded proper verification of every sale transaction and invoices of auctioned mines as high premium is directly linked to average sale price published by Indian Bureau of Mines and consequently the State Revenue. A comparative statement of ex-mines prices in the statutory return vis a vis prevailing market price as indicated by other lessees and monthly reports of reputed agencies may be prepared prior to arriving average sale price by IBM.
Regular squad visits in the mines to ensure proper computation of ex-mines prices in the invoices as dispatch of mineral is continuous and so constant vigilance is required to prevent loss of revenue due to declaration of higher grade as low grades and lower ex-mines prices.

  To avoid related party transactions and the like, MASS demanded that ,  the ASP should exclude all prices that are beyond a range from the highest price e.g. the price band may have to defined such that any price lower than 10-15% from the market price will not be taken into consideration.