In an interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy, Seshagiri Rao, Joint MD and Group CFO, JSW Steel, said the passage of the MMDR bill, which will pave the way for a transparent auction for minerals in a similar way as the coal auctions, will help ensure supply of raw material.
“There will be some relief about the renewal of mining leases, which are pending in various states,” he said. “If that can be done quickly it will bring 30-40 million tonne of iron ore into the market, which will be a great relief for the steel industry.”
Below is the transcript of the interview on CNBC-TV18.
Latha: How do you approach this, are we supposed to be happy that more mining contracts will come out more freely?
A: There will be some relief about the renewal of mining leases, which are pending in various states. Today the steel industry is suffering from lack of iron ore in India. We are importing iron ore. However, if this bill provides for putting to rest uncertainties in renewal of leases in various states which are pending -- for instance, if it is a captive mine, it can be extended up to 2030, if it is non captive up to 2020.
That will put at rest uncertainty, which is prevailing with respect to renewal of leases. If that can be done quickly it will bring 30-40 million tonne of iron ore into the market, which will be a great relief for the steel industry. That is one positive which we have seen.
Latha: Nothing prevented the states from renewing the leases even now. The center saying that you can renew them, did anybody stop them? That is a huge black hole of corruption, how will this law ever change that?
A: The point is when there is a bill which is providing for auction route so whether the renewal is to be done or not to be done is a question which each government is keeping pending.
Now, the law is very clear that the first grant can be up to 50 years, if it is captive it can be up to 2030, if it is non-captive, up to 2020. That gives a very good certainty in terms of renewal.
Sonia: Will JSW Steel bid aggressively for iron ore in this auction and what mine size would you target for in future bidding?
A: We have been working towards this. Requesting the government to bring transparency in allocation of natural resources including iron ore. So, as and when the auction will be announced for iron ore, we will be bidding in that auction including the category C mines in Karnataka.
So, we are very anxiously waiting now for formulation of rules by the government after this amendment bill that what are the bidding parameters.
Only one very important element here relative to the coal bill is that in the [coal] auction, participants should be the end users who have setup plants. Whereas in the case of MMDR bill, we are seeing that it is not necessarily for end users. Even though the bill provides that while fixing the bidding parameters, the central government can reserve certain mines for end users.
So, it may be a condition which government can bring-in in the rules. So, formulation of rules is we are anxiously again waiting for.
Sonia: Do you have any indication of roughly how much royalty you would have to pay?
A: There is a 15 percent royalty today, 15 percent of the market price i.e. Indian Bureau of Mines (IBM) price declared. So, this is one cost which is already there today. In addition to that there is a district mineral fund where we have to contribute – the mining companies and whoever gets the mines. However, there is one distinction which they have made in the case of district mineral foundation fund.
In that the mines which are existing as on January 12 2015, that is the date of the amendment bill, they have to pay only 100 percent of the total royalty, they have to contribute to the district mineral fund whereas in the case of mines which are auctioned, which are going to be auctioned, they have to contribute only one third of the royalty to the district mineral fund. That is the difference which we are seeing as far as the contribution to this is concerned.
Latha: How quickly do you think the mines will be put on auction, iron ore or any other?
A: No, now I think the one report which I am seeing, there are 119 mines which can be auctioned after the mining bill is passed but only one important point again we have to understand is that once all the leases are to be given for 15 years from the date of the grant and if it is non captive up to 2020 and if it is captive up to 2030 then the mines which are available after that, we have to count only those mines particularly in each of the segment.
So, we don’t have any idea today how many mines will be available. We are only reading the report that there will be 119 mines which will come for auction. So, the mines which have got canceled, which are lapsed, which are detrimental or which are not allotted only those four categories of mines will come in the auction. So, we will have to see how many mines are there in each state.
Sonia: You said you want to bid for iron ore mines such as Category C in Karnataka. Will you look for bidding for any iron ores mines outside Karnataka as well?
A: Definitely. Today we don’t have any captive mines so therefore whether it is Odisha, Jharkhand or Karnataka we will be bidding for it. We also have the plants in Dolvi which is dependent on Odisha and Chhattisgarh. So, therefore we will be bidding, not withstanding where the mine is located to feed our plants in various states.
Sonia: At this point the mechanism has not been narrowed down upon but can you give us any indication of how much your cost of production could be brought down and how much of your iron ore requirements currently is sourced from imports?
A: Once the renewal happens and this 30-40 million tonne of incremental production comes into the market, then there is no need for India to import iron ore; it will be self sufficient. As regards to costing is concerned, today if a mining company has to pay or a steel company has to play, 15 percent royalty plus almost close to 15 percent to district mineral fund plus another 2 percent of the royalty towards national mineral exploration fund plus forest development tax (FDT) which is prevalent in the state of Karnataka another 12 percent plus the auction price, plus the mining cost – I am not sure whether there will be any saving in the overall costing.
Latha: At Dolvi where you can import and you are at the coast, is it beneficial to import or will it be beneficial to go through this entire process and get a in-house mine?
A: Security of iron ore is very important steel company as it is a key raw material. It is not the costing alone, security of the material and availability we have to look at. Also, future movement of the price, that also we have to take into account. So, therefore having captive mines is most important today because as JSW we have suffered for lack of captive iron ore in the past. So, that is why steel companies are looking for security more today than costing right now. Costing side I don’t see big saving.
Latha: When do you think the first lease will be renewed and when will the first mine come under auction, how months are you looking at?
A: In the next three to six months I expect all the mines at least will get renewed and this 30-40 million tonne more iron ore production we are expecting in FY16. So that will ease the current very tight market conditions and also very high iron ore prices relative to international markets. So, that is one very positive which we are seeing in the bill in addition to transferability and also the transparency in allocation of mines.
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