It is ironic that pellet plants and iron ore mines are both located in Karnataka. Yet the state obtains iron ore from Chhattisgarh at great cost of transportation, making it unviable for export

It may be recalled that, on account of illegal mining activities, the Supreme Court had banned certain mines, classified as "C" category; 51 such mines are located in Karnataka. In line with the directives on the subject, now the state government of Karnataka are in the process of finalising the modalities to auction these mines, and decide if this should be for a limited number of years and the quantum of iron ore permitted to be extracted, per annum, during the period.

Due to environmental concerns, iron ore mining activities in the Western Ghats were stopped in 2006 as per Supreme Court directives. Kudremukh Iron Ore Company Ltd (KIOCL), formerly known as Kudremukh Iron Ore has its mines situated in an area declared as a "national park".

It would be interesting to note that the estimated reserves of iron ore in the country amounts to 28.5 billion tonnes, of which 17.9 billion tonnes are classified as hematite that can be easily upgraded for use in steel making. At the moment, the domestic steel industry uses the high grade hematite simply because of non-exploitation (or inadequate) of magnetite; 10 billion tonnes are said to be located in the Western Ghats, of which, eight billion tonnes are in the state of Karnataka.

Due to the non-availability of iron ore from Karnataka, KIOCL (Kudremukh) has been obtaining its requirement from Chhattisgarh, incurring huge cost of transportation. The Indian Railways have been charging freight rates based on distance (750 kms) covered, as they manage to get whatever they can from NMDC, and do not have a "captive" iron ore mine of their own!

There is no reason why Railways cannot extend a flat "export" freight rate concession since the pellets manufactured by KIOCL are meant for export to both China and Japan, fetching an average $162 per tonne.

In fact, right now, KIOCL is in the process of executing a 300,000 tonnes iron ore pellet contract with China, which it expects to ship out between January and March this year. The first lot of 50,000 tonnes are being loaded at the New Mangalore Port, as we write this report, at the above price.

KIOCL's pellet plant is operative at Mangalore, and has a capacity to produce

3.5 million tonnes per year, provided there is continuous supply of the required type of iron ore, for which, allocation of a captive mine would be of additional help. According to Malay Chatterjee, the managing director of KIOCL, for the first time, they have been able to reach a production of 2 million tonnes, thanks to supplies from NMDC.

Malay Chatterjee had taken up with the authorities the question of making available suitable incentives to enable the factory to go in for 100% export. This would be possible with some incentives and with the additional backing of a "captive" iron ore mine.

Set against this approach, The Associated Chambers of Commerce and Industry of India (Assocham) had urged the central government to impose a duty of 30% on export of iron ore pellets, fines and lumps so that the supplies are supplied to the domestic market. This did not find favour with the Indian government.

According to the records available, India exported 210,000 tonnes of iron ore pellets in 2011-12, but none in 2012-13 when it had to import 800,000 tonnes to meet the domestic needs (as a sequel to mining ban) in 2011-12 and 14.7 lakh tonnes in 2012-13. Pellet production is actually increasing and is likely to reach 80 million tonnes by 2014.

Since the Karnataka chief minister, Siddaramiah, has suggested that, perhaps, KIOCL could be allocated a suitable mine from the "C" category (mines that were closed due to severe violations) when these are offered for auction. It is a laudable thought that would help the development of the industry locally.

After all, it is ironic that the pellet plant and iron ore mines are both located in the state, but, yet the iron ore has to be obtained from Chhattisgarh at great cost of transportation, making it unviable for export. After all, iron ore from

Chhattisgarh could be made available to somebody else closer at home, and they could save the cost of transportation too.

In any case, chief minister, Siddaramiah, may note that there are couple of iron mines, such as Chikkanayakahalli (10 million tonnes) and Ramanadurg (30 million tonnes reserves) are available that may be found useful for allocation to KIOCL.

It is in the interest of national export effort that this allocation of a captive iron ore mine is made available to KIOCL as soon as possible. It would still take several months before they can start mining operations as they may still have to go through a number of "clearance" formalities with various authorities, and until then, they need to depend upon supplies from NMDC.

Railways should come forward to ensure that export concessions are made available for iron ore despatched to KIOCL from Chhattisgarh or anywhere else since they would be exporting 100% of the their pellets.

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)