For more than a year now, India’s iron ore miners have been asking the government to drop a 30 percent export duty because it hinders their business. With a new government in place in May, they thought their voice would be heard finally… but nothing happened.
Now, with global iron ore prices down, the clamor for the removal of the tax has gathered momentum again. The latest to join in is metals and mining giant Vedanta Resources, whose Chief Executive Officer Tom Albanese has openly criticized the export duty.
As reported by MetalMiner in July, miners inclined towards exports are of the view that due to the paucity of ore, the high duty has made exports unviable, resulting in job and revenue losses. On the other hand, the steel majors, prime consumers of the ore, said the government was right in imposing the tax as they were facing a shortage of ore within the country following the mining ban (now partially revoked). In 2012, the export duty was hiked to a flat rate to ensure that the requirement of domestic steel manufacturers was met first.
The government needs to make up its mind in the coming months, not only because of the persistent demand by the mining lobby but also because of a fresh development from the iron ore-rich state of Goa. Iron-ore production in in this western state is expected to resume in the first quarter of next year.
A senior Goa Mineral Ore Exporters Association official told the media persons that the state government plans to renew at least 27 mining licenses by mid-October and give other procedural clearances in the months thereafter.
In April this year, the Supreme Court of India lifted the mining ban in Goa, allowing mining to resume, subject to a maximum of 20 million metric tons each year. Following this, the local government had begun preparations to renew licenses of operators.
The 30 percent tax puts a question mark over the possibility of iron ore exports from Goa. Two years ago, the state accounted for about 60 percent of India’s total iron ore exports, a total of about 62 million tons.
This was the exact sentiment echoed by Vedanta Resources CEO Albanese in an interview with The Business Standard, even before the announcement of the Goa mining resumption came in. He said the heavy duty would “restrict the amount of iron ore or the quality of iron ore that could be exported. So, the actual exports will be lower and the tax (receipt) will be even less.”
The 30 percent export duty coupled with the mining ban had led to India losing market share to Australia, Brazil and China.
Then, there’s also the question of low-grade ore being included in the export duty tax. The ore demand in India is also of a much higher grade than the 62 percent iron content ore mined from Goa. Therefore, there was a need to incentivize exports, say industry followers.
Incidentally, Vedanta Resources (LONDON:VED) subsidiary Sesa Sterlite was among the firms severely impacted by the ban in Goa.
by Sohrab Darabshaw