Comptroller and Auditor General (CAG) has shared alarming details about the loss of mining revenue incurred by the state administration of Odisha under former Chief Minister Naveen Patnaik. According to the CAG, the Odisha govt under the Biju Janata Dal (BJD) lost at least Rs 22,392 crore because leaseholders misreported the quality of the iron ore and underestimated the grade of ore mined between 2015 and 2022 as well as exceeded the mining plan.
The production of chromite without forest clearance, short royalty assessments, non-utilization of sub-grade iron ore, production exceeding permitted in mining plans and environmental clearance and reports of lower-grade iron ore and iron ore fines as screened fines were estimated by CAG when determining the loss figure.
CAG carried out a performance assessment of “Systems and Controls in Assessment and Collection of Revenue from Major Minerals.” It was focused on concerns pertaining to the granting and extension of mining leases, licenses, and licences for the years 2015 through 2022. CAG audited six iron ore mines in the state and the report was laid before the state assembly on 11th September.
What led to the staggering loss
Twenty leaseholders reported the majority of their mined ores as “screened iron ore fines” which are small and less desirable in steel plants. As a result, the ores were subject to lower royalty rates than normal iron ore fines, which are larger and attract higher royalty owing to a state government order in 2010. This resulted in the state losing Rs 10,294 crore, which amounted to half of the total loss in mining revenue.
“There was a significant decrease in reporting of crushed fines from the production pattern of crushed and screened fines as prevalent before the order, leading to revenue implication of Rs 10,294.24 crore for the 20 test checked mines consisting of royalty of approximately Rs 5,841.80 crores and premium of approximately Rs 4,452.44 crores (for four auctioned mines),” the audit agency stated.
In 2010, the State Steel and Mines Department issued an order directing the government to impose a greater fee on “crushed fines” and a lower royalty on “screened fines.” Following this notice, there was an unusual rise in the reported production of screened fines (which have a lower royalty) and a downward trend in the reported production of crushed fines from 2010 to 2011. Notably, it pointed towards a serious possibility of misreporting the “crushed fines,” to avert the imposition of higher royalty and premiums.
Seven of the 14 mines for which production data for the time frame before 2010 was available, showed production of no screened fines at all, while three reported producing less than 7%, one mine 12%, and just three mines between 23 to 42%. However, from 2010 to 2011, when the state government’s directive was issued, the percentage of screened fines produced from the same mines increased.
When compared to the production pattern of crushed and screened fines that were common before the order, by 2021–2022, the reported proportion of screened fines at the 12 active mines ranged from 60% to as high as 82% in the case of 10 mines, 44% for one mine and 27% for another mine.
Suspicious claims of decline in iron ore grade
The apex audit body pointed out an interesting loophole in the auction regime which was adopted after huge mining irregularities were revealed across the country. An “abrupt and abnormal decline in the grade of iron-ore and its classification” was noted following the auction of the selected mines in 2020. A total of Rs 4,162 crore in mining revenue was lost as a result between 2020 and 2022. Prior to the commencement of the auctions in 2020, over 83% of the production was recorded in the 62–65% iron grade, however, in the two years after the sale (2020–2022), that percentage dropped to 16%.
“The decline of the grade of iron ore has resulted in a revenue implication of approximately Rs 4,162.77 crore for the financial years 2020-21 and 2021-22 in the form of lesser royalty and premium (post-auction),” the report mentioned. CAG’s report number 6 of this year highlighted that the mines that supplied better-grade iron ore before the 2020 auction also reported increased percentages of lower-grade iron ore (with less than 60% Fe) after the auction, ranging from 11% to more than 60%.
The average production of iron ore with grades above 60% Fe in a mine under Joda Circle in the Keonjhar district was approximately 77% before the auction, however, afterwards, it decreased to 9.88% in 2020-21 and then to nil in 2021–22 when a new lessee took over operation of the mine.
“It is highly improbable that the grades of mineral reserves, produced from the auctioned mines, would witness an abrupt decline within a short period of one or two years. Such a significant and sharp decline in the grade of iron-ore indicated a significant risk that the new lessees were misreporting the grade of iron-ore produced, in order to avoid higher royalty and premium payable on higher grades,” the report unveiled.
CAG further mentioned, “For the six test-checked mines, changes in reported grades of production of lumps and fines after the auction, as compared to the consistent pattern in the grade of production, as reported by the older lessees, have consequently resulted in a revenue loss.” The loss in mining revenue was also brought to the attention of the CAG since at least eight iron ore mines incurred losses worth Rs 3,618.50 crore due to leaseholders mining above the permitted mining plans’ limitations.
Additionally, leaseholders mined past the boundaries of environmental permissions, costing the state Rs 1,700 crore in lost mining revenue. Furthermore, the CAG noted that Rs 1.48 crore tonnes of iron ore were moved via weighbridges and check gates without e-passes, resulting in a further loss of Rs 1,473 crore in mining income.
The state govt took no action to probe
The CAG report observed that the state administration had “not taken any steps to investigate” the grades of iron-ore production reported by the new lessees as of March 2022, despite an abnormal fall in the grades of iron-ore lumps and fines that indicated the possibility of misreporting.
‘Hold officers accountable’, says CAG report
The government has been advised by the CAG to hold officers accountable for suggesting an extension of the lease period despite objections from various departments regarding irregularities committed by the lessees. Moreover, a thorough and prompt investigation should be conducted across all mines that have been auctioned to figure out whether there was intentional or willful misreporting of lower grades of iron ore to evade paying higher royalties and premiums.
A committee headed by the director of mines and geology was reportedly established by the state government to investigate the disparity in ore downgrading and false reporting of ore size. The committee unearthed that ore was downgraded in three leases and that there was a mismatch in ore size in six leases. Lessees who have favoured the review of the cases before the revision authority are liable for paying an amount of Rs 471.48 crore by the government as a result of the breach.
The report conveyed that mining operations that violate applicable environmental protection laws and go beyond the parameters of the mining plan will undoubtedly have a negative influence on the surrounding ecosystem. “Therefore, the present status clearly indicates the existence of system failure to timely detect the actual grades of lumps and fines produced, which adversely impacted the state government revenue,” the significant report concluded.
