You can read the first part of this story here.

Acknowledging the extent of his knowledge and understanding of how mining works and the system may be manipulated, the hero of the Lokayukta Report, UV Singh, was given the task of setting up e-auctions, which would make the process of selling and acquiring iron ore more transparent and is considered tamper-proof.

An e-auction is ostensibly a transparent process by which, after the completion of every bid, a three-member monitoring committee publishes a document that lists the details of the quality of iron ore, the mine that it belongs to, number of bidders for it and the final takers. The monitoring committee is appointed by the SC and the current one has Singh as one of the members.

Each potential bidder must register as a buyer for a fee of Rs 10,000 on an online portal designed by MSTC Limited (a Public Sector Unit and a subsidiary of Steel Authority Of India) that was formerly known as Metal Scrap Trade Corporation Limited. Once registered, the buyer can see forthcoming auctions on which they can bid. Each seller specifies the quality of ore that will go under the hammer, its type and the floor price from which the bidding should start. When the auction begins, buyers can place a bid at or above the floor price, and increase it as many times as they wish before it closes. Auctions last up to two hours, as per the guidelines. The sellers are those who have (legal) iron ore mines and buyers are typically steel manufacturers.

More than a year after mining was banned in Bellary, the SC allowed 18 “category A” mines to resume operations in September 2012 in the area. Mines were categorised into A, B and C to grade the extent of illegalities committed by them. A category mines are “leases wherein no illegality/marginal illegality have been found”. Mines with more serious infractions were put into B and C categories, based on their respective offences. Once the mines were allowed to resume operations, the ore was sold through e-auctions.

E-auctions has its share of dissenters. “The industry cannot run on auction-based supply of iron ore,” Sajjan Jindal, chairman of JSW Group, told reporters on the sidelines of a conference in 2011. “It has to run on continuous and regular supplies. No industry in the world runs on auction-based supplies.”

However, for Singh, e-auctions are the solution. “Everything is meticulously done and as of date, everything is under control,” Singh said of mining in Bellary today. “Today, thanks to e-auction, not even a single gram of ore is illegally mined or transported.”

Three hundred kilometres away from Singh’s office in Bengaluru, in Bellary district, locals disagree.

The Rise of the Jindals

In 1997, Jindal Steel Works (JSW) Steel, the flagship company of the over $11 billion JSW Group and the largest steel producer in the country, set up a plant in Bellary district. According to AG Sreeshaila, of Jana Sangram Parishath (JSP), the JSW Vijayanagar steel plant had a capacity of 1.2 million tonnes a year when it commenced operations. Today, the annual capacity has grown to 10 million tonnes, according to the company’s website. The Jindals are now looking at expanding their set-up here so as to push production to 15 million tonnes of steel a year.

“If this was the Republic of Reddys in 2003, today it is the Republic of Jindals,” Sreeshaila told Newslaundry. 

Records of the e-auction available online show that JSW’s Vijayanagar plant sources most of its ore from two public sector mining companies in Bellary. The first is the National Mineral Development Corporation (NMDC), a central government-owned company and India’s largest iron ore producer, which runs two mines in the Bellary region. The other is Mysore Minerals Limited (MML), a government of Karnataka-owned entity, which also has two operational mining leases in Bellary capable of mining nearly 4 million metric tonnes of ore annually.

On condition of anonymity, a senior official at one of the MML’s two mines in Sandur told Newslaundry that about 90 per cent of MML’s ore was bought by JSW Steel. This is confirmed by an examination of the bid sheets from e-auctions, which show that from the start of this financial year in April 2016 till January 6, 2017, the total amount of ore produced by both MML mines was 26,43,000 tonnes. Out of this, 23,77,000 tonnes were purchased by JSW Steel. That’s 89.9 per cent of MML’s total production.

During the same time period, the output of NMDC’s two mines was 1,19,38,000 tonnes and JSW Steel acquired 80,11,000 tonnes of it through e-auctions, comprising 67 per cent of the company’s production. In total, out of the 1,45,81,000 tonnes produced by both NMDC and MML in Bellary, JSW Steel bought 1,03,88,000 tonnes or 71.2 per cent of it.

None of this is, of course, illegal. After all, JSW Steel is the biggest producer of steel in the country and therefore requires much more ore than other steel producers. But in Bellary there are murmurs from local activists about how JSW Steel may have figured out ways of subverting the e-auction process.    

Sreeshaila alleged that JSW Steel was purchasing high quality ore from government mines at the price of ore of inferior quality. “They (NMDC and MML) are selling off good quality ore but in their records they show it is of poor quality,” he told Newslaundry. “They will show they’re selling 58 per cent grade ore, but in reality it is 63 per cent grade ore.” This is done by having a layer of inferior quality ore over a load of superior quality ore, he said, as a result of which there is extensive loss to the exchequer.

JSW Steel purchases most of its ore from government mines. Between April 2016 and January 11, 2017, JSW Steel bought 39,13,500 tonnes of ore from private mines while ore purchased from government mines amounted to more than two and a half times that amount – 1,03,88,000 tonnes.

At the bottom of every bid sheet from an e-auction, one can see the total value of the lot at floor price and the total value of the lot at bid price. The differential shows “percentage increase over floor value”. Perusal of bid sheets reveals that this percentage is remarkably low for auctions in which public sector mines in Bellary are selling ore and is sometimes even zero. Essentially, this means that there has been no bidding on the ore and the buyer – JSW Steel in most cases – picks up the lot unopposed.

In auction 21 (dated June 6, 2016), JSW Steel purchased the entire lot of 2,16,000 tonnes at floor price, with a percentage increase over floor value of zero. The same number was also zero in auction 39 (dated July 28, 2016) during which JSW Steel purchased 3,00,000 tonnes of ore from the 3,04,000 tonnes on sale. In auction 73 (dated November 22, 2016), the same percentage was a miniscule 0.23 per cent.

This percentage increase can be attributed to buyers other than JSW Steel who together purchased 36,000 tonnes of ore in that auction and who placed bids above the floor price. JSW Steel, which bought 2,08,000 tonnes in that auction, acquired all of it at the floor price.

The percentage increase over floor value was 0.01 per cent for auction 13 (dated May 13, 2016), in which JSW Steel picked up 1,96,000 tonnes out of the 2,00,000 tonnes on sale, all of it at the floor price. Another company, SLR Metaliks Ltd, purchased 4,000 tonnes from the same lot at Rs 10 higher than the floor price, thanks to which the percentage increase wasn’t zero.

All of the above auctions involved either MML or NMDC. In comparison, auctions in which private companies are selling ore register a higher percentage increase in floor value.

For example, in auction 57 (dated September 27, 2016) JSW Steel purchased 20,000 tonnes of ore from Sesa Sterlite Ltd by bidding Rs 690 above the set floor price. In the same auction, they acquired 4,000 tonnes from the mines of P. Balasubba Setty & Son at Rs 30 above the floor price. The percentage increase in floor value of this particular auction – in which JSW Steel bought 6,20,000 tonnes out of the 9,64,000 tonnes on sale – was 6.93 per cent.  

Similarly, in auction 62 (dated October 14, 2016) JSW Steel exceeded the floor price by Rs 140 when it purchased 4,000 tonnes of ore from the mine of Veerabhadrappa Sangappa & Company. In the same auction, they also paid Rs 90 above the floor price on another batch of 8,000 tonnes of ore also from Veerabhadrappa Sangappa & Company. Overall, out of 2,65,000 tonnes of ore on sale in this auction, JSW Steel purchased 2,03,500 tonnes with the percentage increase over floor value at 4.2 per cent.

In a document provided to Newslaundry by Sreeshaila’s JSP, an analysis of e-auction data of one NMDC mine shows that out of the 171 lots of ore it sold between April, 2016 and November, 2016, only in 20 lots the bidding price exceeded the floor price. In the same period, out of 187 lots auctioned by private miners, 109 lots were sold at a price higher than the floor price. “This is an indication for cartel working to deprive NMDC from exploring the right to price determination,” the document concludes.

It should be noted that JSW Steel has occasionally purchased ore from government mines above the floor price. Also, there are instances where JSW Steel has paid the floor price for ore from private mines. However, the overwhelming pattern that emerges is that of the price of ore from government mines being depressed, depriving them of revenue.

TN Shivakumar, a lawyer who practises in Sandur (a taluk in Bellary) and has worked at exposing illegal mining since the Reddy-era, spoke about other irregularities in the e-auction process. “NMDC and MML, the two government mines that participate in the e-auction process, show one place on the documents but transport the consignment elsewhere,” he told Newslaundry. An MML source alleged that JSW Steel remote controls the transport process. “If some other company (other than JSW Steel) successfully bids for a consignment, then the load doesn’t leave our premises,” the source told Newslaundry.

When Newslaundry asked Singh about the allegations that the e-auction process may be manipulated, he had no hesitation in saying “it is just not possible”. On the topic of JSW Steel acquiring the bulk of ore from government mines in an auction, Singh said that since “Jindals have slightly more transportation (capability), they purchase the entire thing”. He speculated that government mines “might be fixing a greater (floor) price” which may be the reason “why others are not going for the bidding”. When asked if government mines were being pressured to fix prices to benefit a certain party, Singh was vague and said lessees “have their own mechanism to fix the price”, which the monitoring committee doesn’t scrutinise.

Newslaundry also reached out to JSW with a set of queries pertaining to specific allegations against the company. Below are our questions and JSW’s reponse in toto.

In the current financial year, JSW Steel has purchased more than 14 million tonnes of iron ore from Bellary and Chitradurga districts, which is nearly half of the SC-imposed combined mining cap of 30 million tonnes. The company has also acquired three ‘category C’ mines in Bellary through e-auctioning in October last year, cementing and strengthening their position in the district even more. Again, none of this is illegal, considering JSW’s mammoth size and requirements. However, the monopoly that JSW seems to be establishing in Bellary raises questions about whether the district is being set up for exploitation, yet again. Singh retires next year and he no longer keeps as close an eye on Bellary as he used to. “The monitoring committee is dead. They sit far off in Bangalore in the comfort of their air-conditioned offices,” Sreeshaila said. “They just sign the reports sent to them but no one visits the field,” he added. The question is, who will take over from Singh and be Bellary’s protector?  

Meanwhile, JSW’s shiny Vijaynagara campus is a glistening bubble of modernity that seems incongruous in Bellary’s blasted terrain. It’s almost a little town, complete with the shiny artificiality that characterises model replicas. Contrary to the ecological disaster that Bellary has become with its green cover caked in red soil, over one-fifth of this sprawling campus is covered with trees and well-manicured lawns. While armies of gardeners tend the lawns, a massive water fountain welcomes you at one of the entrances to the campus.

Inside its 150 acre area stands a steel plant, a cement plant, a power generation unit, a Hyatt Regency, a school, supermarkets, an airport, private railway lines, a hospital and other amenities. In contrast, outside the premises the district of Bellary is a haze of red mist with the little remaining green cover wearing a bloody hue of iron ore sprinkling.

This story is part of the NL Sena project. It was made possible thanks to Arnab Chatterjee, Rahul Pandey, Narasimha M, Vikas Singh, Subhash Subramanya, S Chattopadhyay, Ameya Apte and other members of the NL Sena. We want to do more such stories and you can help. Be a part of the NL Sena and do your bit to keep news independent and unafraid. Click here.