February 16, 2012

Indian ports and the new Supreme Court risk

Consumed by the Indian Supreme Court's ruling on the telecom scandal and its aftermath, what passes for the media in this country has ignored the recommendations of the same court's Central Empowered Committee (CEC) that were made public almost concurrently. If  accepted, the recommendations of the panel- set up to probe illegal mining that, combined with the disgraceful chicanery associated with 'legal' mining, make even the astronomical figures associated with the telecom scam pale in comparison- will have a immense negative impact on the shipping and port sectors. Not just profitability, but the viability of some ports may end up being called into question. 

While asking for the suspension of 49 iron ore miners from Karnataka and saying that 72 others should be severely fined, the CEC has asked that the annual production from that State be capped at 30 million tonnes. The language of the report is indicting. “The extent and level of unauthorised, unregulated, environmentally unsustainable and illegal mining in its various facets has no other parallel in the country,” the CEC is quoted as saying. 

It is not just the CEC; India seems to be slowly waking up to the mother of all scandals that is year's old- the fire sale of its mineral resources. Except that most of the proceeds of the sale go into the usual private and public pockets (in partnership, of course), with the country itself getting next to zilch. This is the second East India Company.

 Orissa has, in recent times after a mini crackdown, barred its ore from being shipped out through Vizag and Kakinada because, according to Orissa's mines ministry, those ports failed to cooperate with inquiries into illegal mining. The Madhu Koda fraud- where the then allegedly honourable Chief Minister of Jharkhand allegedly siphoned off a fifth of that State's annual revenue- may have been buried by you know who, but the US$12 billion Belekeri port scam thereafter has brought down a Chief Minister- and resulted in a (since lifted, although exports have not resumed) Supreme Court ban on mining from the Bellary region. Three and a half million tonnes of ore were reportedly exported without a rupee of royalty paid to the exchequer before the ban. One report said that only 200 trucks were officially reported as against 4000 plying everyday. Goa is another hotspot, with powerful people involved.

Despite its huge internal steel demand, most of India's iron ore has been-legally and illegally- exported to China through ports like Paradip, Haldia, Vizag, Kakinada and Gangavaram. Two of these are now blacklisted; Paradip saw a halving in the number of rakes coming in after the Orissa crackdown began. However, the economic threat to these ports is not just because of central and State agencies being forced to take action after the spotlight has shone on illegal mining. It is not just, as we will see, a problem of reducing cargo volumes that will threaten ports. 

The fact is that the list of companies involved in mining are established leaders of the corporate world. Indian companies- including Tata Steel, Essar and Larsen and Toubro- are major participants in mining or ports in the region. Mining companies are going to see their profitability badly hit, should the CEC's recommendations be accepted. NMDC, the country's largest iron ore producer, and JSW will pay a higher price for iron ore. (NMDC would also lose 10% of its revenue to an infrastructure development fund recommended by the CEC). Sesa Goa's plans to enhance capacity in Chitradurga would grind to a halt. Mysore Minerals and MSPL would have to shut down a mine each. Some smaller companies may have to quit completely.  "Mining could well see negative growth of 2.2% versus 5%,'' says commodities analyst Santosh Bagchi.

Supreme Court committee recommendations are important, but it would naive- even foolish- to see the system's response to corruption as the only threat to the ports in the region. The fact is that the human cost of the corruption in mining is massive in terms of the torture, rape and widespread oppression of local villagers and tribals in states like Chattisgarah, Jharkhand and Orissa. The fact is also that mining companies and those pillars-of-the- corporate world are paying extortion (up to 5 percent of revenues in case of illegal mining) to 'Naxalites' for the privilege of operating in these areas today. The fact is that one can superimpose a map of India's mining districts onto a map of naxalite areas and find complete coincidence. A third of Indian districts are naxalite affected. Many of those districts are powder kegs with a lit fuse; how long before they explode? How long before horrendous tales of the custodial sexual torture of the Soni Sori's- and her cold-blooded abuse by the system in Delhi that sent her back to her torturers while awarding one of them a gallantry award- results in a conflagration that will pose an existential threat to mining? How long will ports- especially on the east coast- escape the financial and security backlash, should this happen? 

Interestingly, just a few days after the CEC report, Shipping Minister Vasan announced his firm commitment to the Public Private Partnership model for port development. According to him, "it is necessary to increase the overall capacity of Indian ports to 3,230 million tonnes by 2020 from the current 963 million tonnes".  The Government of India is planning to encourage private investment in the port sector. All kinds of sops and tax holidays will be rolled out to promote that PPP, I am told.

The threat of civil unrest is an old one. However, I am afraid that until the existing PPP is dissolved- the one that the bureaucrats and politicians have going on with mining companies across India- I won't be investing my hard earned seagoing wages in that sector just yet. At least not on the eastern and the southern west coasts. Mainly because it is a tinderbox waiting for a match, but also because- as we saw in the telecom scandal- there is a new risk to doing business in India: the Supreme Court risk. 


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