Business Today

Bellary in crisis

The economy of the mineral-rich town has been left reeling after Karnataka's ban on export of iron ore.

K.R. Balasubramanyam | Print Edition: Nov 28, 2010

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.

Iron ore export was banned…

  • To curb illegal mining
  • To get new steel mills to the region
Its impact
  • Bellary's economy takes a big hit
  • Almost 5,000 workers lose their jobs
  • Exports have almost halved in September
  • Prices of iron ore tumble
… And the road ahead …
  • The BJP government says it is likely to be a short term measure to combat illegal mining
  • The dispute is now pending before the Karnataka High Court
  • The state is wooing steel companies to set up plants in the region
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.

B.S. Yeddyurappa
B.S. Yeddyurappa
Ban is meant to curb illegal mining: 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.

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