8 mining firms indicted by CAG in Odisha are political donors

Last month, a Comptroller and Auditor General report had pointed to serious lapses on part of the Odisha government which substantially helped 23 private companies deal a loss of Rs 22,392 crore in mining revenue from 2015 to 2022. Newslaundry has now found that eight of these companies, which caused a loss of at least Rs 6,962 crore, had donated a total of Rs 601 crore in electoral bonds. 

Four donated both to BJP and BJD, two each only to the BJP and BJD, and one to the BJP, BJD as well as Congress. 

The largest share of the donations were to the BJD, which was in power in the state and got 453 crore from six companies. This was followed by the BJP, which was given Rs 145 crore by six firms, and the Congress which received Rs 3 crore by one of these companies.

It’s not the first time these donors have courted controversy. All of them were also named by the MB Shah Commission in 2013 for various mining violations – that report had named at least 20 of these 23 companies.

The CAG report is only the latest in a series of issues that have plagued the sector in Odisha – from concerns linked to competitive practices to environmental degradation. It flagged multiple irregularities in the granting and extension of mining leases, permits, and licenses, as well as in the reporting of mineral dispatches and sales by leaseholders in Odisha. 

Resource-rich Odisha accounts for 57 percent of India’s iron ore production, with around 60 working mines, and an area of over 150 sq km under exploration. Earlier this year, in response to a question by the Supreme Court about imposing a limit on iron ore mining in the state, the Narendra Modi government had argued that the need for a cap does not arise as more than 70 percent of ore areas remain unexplored.

Seven of the eight donor companies mentioned above were flagged for undervaluation of ore, while the eighth was mentioned for mining beyond the limits. Three of these were named for both undervaluation of ore as well as excess mining.

The losses

Apart from the Rs 10,294 crore blamed on the undervaluation of ore mined by 14 firms, a loss of Rs 4,162 crore between 2020 and 2022 was attributed to a suspicious drop in the quality of iron ore mined. The auditor also identified at least eight iron ore mines that exceeded their mining limits, leading to an additional loss of Rs 3,618.5 crore. 

The state exchequer also suffered losses to the tune of Rs 1,600 crore due to mining activities that violated environmental clearance limits. The report highlighted that 1.48 crore tonnes of iron ore were transported without proper e-passes, leading to a Rs 1,473 crore revenue loss. The state's failure to verify sales turnover reported by leaseholders also resulted in an underassessment of royalties, costing another Rs 1,200 crore.

The donors

Among the 23 private companies named by the CAG are Rungta, Essel, JSPL, MGM Minerals, BICO, KJS Ahluwalia, PTA, Patnaik Minerals, Geetarani, AMTC, Indrani Patnaik, Sirajuddin and Co, the Atha Group through its firms KN Ram and Narbheram Steel and Co, Feegrade, Kaypee, JSW steel, SN Mohanty, ArcelorMittal, Tarini Minerals, Sarda Mines, Korp Resources, Kanakdhara Mining Minerals (P) Ltd, and Kashvi international. It also named two individual leaseholders of mines – JN Patnaik, who is a director of Patnaik Minerals, and TP Mohanty.

The eight political donors were Essel Mining, JSPL, Kaypee, Rungta Sons, Penguin and Trade and Agency, SN Mohanty, KJS Ahluwalia and Indrani Patnaik.

Four of these donated to both BJD and BJP, Rs 396 crore and Rs 126 crore, respectively, and cost the state exchequer at least Rs 5,032 crore, as per the CAG. These donors include Essel Mining, JSPL, Kaypee, and Rungta Sons.

Among them, only Kaypee donated Rs 3 crore to Congress while it donated Rs 105 crore to BJD and Rs 14 crore to BJP. Similarly, JSPL donated Rs 100 crore to BJD and Rs 3 crore to BJP. Essel Mining donated Rs 141 crore to BJD and Rs 59 crore to BJP. Rungta gave Rs 50 crore each to the BJD and BJP.

Two donors – PTA and SN Mohanty – donated only to BJD, Rs 27 crore and Rs 30 crore, respectively. According to CAG, PTA caused a loss of at least Rs 9.96 crore while SN Mohanty was responsible for a loss of Rs 617 crore in mining revenue.

KJS Ahluwalia and Indrani Patnaik, who donated Rs 14 crore and Rs 5 crore, respectively, to the BJP caused the exchequer at least Rs 469 crore and Rs 1,375 crore, respectively.  

Other firms and donations by linked entities

Two other firms – KN Ram and ArcelorMittal – were also found to have caused a loss of at least Rs 257 crore and 27 crore, respectively. 

While none of them donated directly, the holding company of KN Ram, Atha Group, donated Rs 4 crore to BJP through its partnership firm, Narbheram Vishram. Another Atha Group company Narbheram Power and Steel was also named by CAG for causing a revenue loss amounting to Rs 215 crore between 2020 to 2022. 

Separately, the chairperson of ArcelorMittal group, Laxmi Niwas Mittal, donated 35 crore to BJP. 

Meanwhile, BICO and Feegrade, who are named in the CAG report for causing losses to the tune of at least Rs 128 crore and Rs 383 crore, respectively, are linked to Rungta through several common directors.

AMTC and Geetharani, named in the CAG report for causing losses to the tune of at least Rs 53 crore and Rs 69 crore, respectively, are not direct donors. But their business partner, Thriveni Group, had donated Rs 5 crore to BJD. It also donated Rs 3 crore each to Jharkhand Mukti Morcha and DMK. Notably, Thriveni is headquartered in Tamil Nadu’s Salem, and has a significant coal mining business in Jharkhand. 

Similarly, a company linked to Serajuddin and Co, named Sarosh Alizah Mining, had donated Rs 2.5 crore to BJP. 

The missing metals and the ledger’s largest loss 

When iron ore is mined, it has different sizes, and is passed through a crusher machine, which breaks it down to three different categories. The “calibrated lump ore” or CLO is the largest in size and richest in iron, followed by “lump”, and then the “fines”, which usually have the lowest iron content and the smallest size. 

The CLO has a better market price than a lump, but a mining company is charged the same royalty by the government for both categories due to non-publication of rates by the Indian Bureau of Mines – a central institute under the mining ministry. A royalty amount is supposed to be charged on mined ores, as per the MMDR Act and Mineral Concession Rules. 

But in Odisha, the largest estimated mining loss was due to undervaluation in another category – “fines”. In 2010, the state’s steel and mines department had issued an order to charge higher royalty for “crushed fines” and lower royalty for “screened fines” –  the crushed fines were defined as larger than screened fines. And then, there was a sudden spike in the reporting of screen fines.

“It was further observed that 12 lessees, in their monthly returns for 122 months, had shown production of CLOs, but ‘nil’ production of ‘crushed fines’; all fines produced had been reported as ‘screened fines’. This could not be correct, as production of CLOs through crushing machines was not possible without production of ‘crushed fines’,” noted the CAG report.

The CAG  conducted scrutiny of iron ore production of at least 17 mines involving 21 companies, including one state government-owned company. However, out of these, CAG could gather comprehensive data on pre-2010 production and post-2010 production for only 14.

“The proportion of screened fines, produced from the same mines, as reported by the lessees, increased from FY 2010-11 onwards. By FY 2021-22, out of the 12 active mines, the reported proportion of screened fines ranged from 60 percent to as high as 82 percent in the case of 10 mines, 44 percent, for one mine; and 27 percent, for another mine,” the CAG noted. 

For example, the Nuagaon mine which was leased to Essel had reported 0 percent screened fines during the period 2007-2010. This increased to  62 percent by 2021-22. 

Similarly, another mine in Nuagaon leased to KJS Ahluwalia saw a rise from 0 percent in 2007-2010 to 65 percent in 2021-22. The Jajang mine, leased to Rungta, recorded an increase from 0 percent to 70 percent during the same period. Raikela mine, leased to PTA, recorded an increase from 0 percent to 27 percent and Jaribahal mine leased to Patnaik Minerals recorded a rise from 0 percent to 39 percent. 

Another mine in Raikela, leased to Geetarani, a subsidiary of Thriveni Earthmovers, saw a surge in screened fines production from 0 percent to 60 percent.

State-owned OMC, which is the lessee of the Kurmitar mine, reported a rise from 0 percent to 68 percent. 

Meanwhile, the TRB mine, leased to JSPL, recorded an increase in the proportion of screened fines production from 4 percent to 68 percent. Similarly, the Petbeda mine, leased to MGM Minerals, recorded an increase in screened fines production from 2 percent to 44 percent. Unchabali mine, leased to Indrani Patnaik, recorded a rise of 7 percent to 82 percent. 

Others included the Rungta-operated Orghat mine (27 percent to 68 percent), BICO’s Nadidihi mine (23 percent to 81 percent), AMTC-operated Narayaposi mine (42 percent to 51 percent), and Sirajuddin and Co operated Balda mine (12 percent to 73 percent). The data for Nadidihi and Balda is only till 2019-20 as the lease for both of these mines had expired in 2020. 

Two mines – Thakurani and Roida II – for which the data for pre-2010 was not available also recorded steady increase in proportion of screened fines. Thakurani mines, leased to Kaypee, recorded 58 percent screened fines in 2011-12. But the same shot up to 83 percent in 2019-20 before its lease expired. Similarly, at the Roida-II mine, leased to KN Ram, an Atha group subsidiary, the production of screened fines increased from 46 percent in 2010-11 to 77 percent in 2019-20 before the lease expired. 

The CAG also observed that 12 lessees in their monthly returns for 10 years had shown zero production of “crushed fines”. “All fines produced had been reported as ‘screened fines’. This could not be correct, as production of CLOs through crushing machines was not possible without production of ‘crushed fines’,” the CAG said. 

These 12 lessees include Indrani Patnaik (Unchabali mine), K N Ram (Roida II mine), OMC (Kurmitar mine), BICO ( Nadidih mine),  AMTC (Narayanposhi mine),  Tarini Minerals (Deojhar mine), Patnaik Minerals (Jaribahal mine), TP Mohanty (Naibega Katupali mine), and JSW (Nuagaon, Jajang, Gonua and Narayanposhi mines).

The significantly higher proportion of screened fines after the 2010 notification should be viewed in the context of clear lower quantification of proportion of screened fines before the notification, the CAG noted.  

CAG’s other findings

Another major source of revenue loss – to the tune of Rs 4,162 crore – between 2020 and 2022 was due to “abrupt” and  “abnormal”  decline in the grade of iron ore. The CAG observed this in six mines, of which three belonged to JSW Steel. 

Other three were mined by ArcelorMittal, Narbheram Power and Steel, and Kashvi International. 

According to CAG, the state government lost Rs 3,618 crore in revenue due to production of iron ore beyond the mining plan. It named eight companies for this violation: Kaypee, KN Ram, Rungta, Indrani Patnaik, OMC, SN Mohanty, JN Patnaik, and Essel. 

Essel topped the list, followed by Indrani Patnaik and SN Mohanty. 

Similarly, CAG blamed the Roida-II mine leased to KN Ram and the Thakurani Block-B mine leased to Sarda Mines for production exceeding the limit approved in their environment clearance. 

CAG also found huge differences in the sales turnover declared by seven lessees to the mining department and GST authority. “The sales turnovers of these lessees, as per their VAT/GST returns, were higher than the sales turnovers shown in their H1/G1 annual returns, submitted to the mining circles,” CAG said. “This was indicative of the risk that lessees were underreporting their sales turnovers, to the concerned mining circles, in order to reduce their liability towards payment of royalty.”

These seven include Kaypee, TP Mohanty, Essel, JN Patnaik, Kanakdhara Mining Minerals (P) Ltd, Korp Resources Ltd, MG Mohanty (MGM). 

Newslaundry reached out to all the companies named in the report. This piece will be updated if a response is received.

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