2024-10-08 17:25:06
New Delhi: Vedanta Resources Limited Chairman Anil Aggarwal recently made a serious allegation in a post on social media platform X. He said India’s iron ore industry is ‘dying’ due to high auction premiums, limited blocks on offer and slow operation of mines. A few hours later, the Union Mining Ministry issued a sharp response to the issue itself. In this, Agarwal’s statement was described as ‘completely misleading’ and ‘incorrect’. After all, what is the matter, what are the arguments of both the parties and what impact can this dispute have on the iron ore industry. Agarwal wrote in the beginning of his post, ‘If you have to share more than 100% of your revenue with someone else. So will you be able to run your business successfully? I doubt anyone would answer yes. But, this is the reality of India’s iron ore industry today. And it is dying.’
What argument did Anil Aggarwal give in support of his claim?
The Vedanta chief argued that the government had started the auction system to increase transparency in mining. But, the limited number of blocks on offer coupled with competition from steelmakers is creating a ‘huge demand-supply gap’. Due to this the bid is increasing a lot.
Aggarwal claimed, ‘Bidding is done on the basis of how much revenue you will share with the government. “Since the auction started, the average for iron ore is 118%.”
The government rejected the claim saying
About twelve hours later, the Mining Ministry rejected Agarwal’s comments as ‘completely misleading’. Its official X account said, ‘No mining company in India shares 100% of the revenue with the government.’
The post explained that the auction bid reflects the monthly premium that a company pays to the state government as a percentage of the average ex-mine price of iron ore. This does not include expenses incurred on logistics and value addition for steel production. The ministry said, ‘The auction premium is not paid from the total revenue of the company.’
However, the ministry rightly pointed out that auction premiums are applied on the average ex-mine price of iron ore and not on the total revenue of the mining company. But, since 2016, premiums for auctioned blocks have increased rapidly. Higher auction premiums put pressure on profit margins. Especially for mining companies that are not integrated with the downstream value chain.
Since the Mines and Minerals (Development and Regulation) Amendment Act, 2015 introduced the auction system. Therefore, 121 iron ore blocks have been auctioned across India. Of these, 35 blocks were awarded under composite license (CL). These required further exploration.
The average auction premium for the remaining 86 blocks awarded under mining leases (ML) is 119 per cent, according to The Indian Express’ analysis of official auction data. This figure has increased in the last few years. This has increased from 86 per cent for the first eight blocks auctioned in 2016 to 171 per cent for the most recent 16 blocks auctioned in 2023.
In response to Agarwal’s claim of a demand-supply gap due to a limited number of auctioned blocks, the mining ministry said 17 blocks are currently under auction. 60 more have been handed over to state governments.