India’s ministry of mines has launched an initiative, for the second time, to frame an indigenous iron ore index, similar to the Platts iron ore index, to facilitate uniform determination of royalty rates, government sources said on Friday, April 25.
The sources said that the ministry is preparing a consultation paper outlining the structure of such an index, which would subsequently be circulated among all industry stakeholders seeking comments and inputs.
According to the sources, the Indian version of an iron ore index would not be identical to current indices of leading commodity exchanges nor linked to them, but framed taking into consideration localised elements and used to determine royalty payment liabilities of iron ore mines leased out for ore extraction.
Currently, multiple prices sourced from Odisha Mining Corporation (OMC), an arm of the Odisha government, and a central government-owned iron ore miner, NMDC Limited, and an average price worked out for determining royalty rates.
However, the government is of the view that this does not reflect the real price movements across the short and medium terms adequately and the amount of royalties actually payable by a miner, the sources said.
It was pointed out that the price declared by mining companies is used to calculate the revenue of state governments from mining operations. States collect 15 percent of the iron ore sale revenue as royalty. Another two percent of the royalty paid is collected as district mineral fund (DMF), which is used for development activities in mining-affected regions.
Quite often there are variations across states and these impact payouts. Earnings come down in case lower values are declared for higher grades of iron ore, the sources said.
Furthermore, the sale price of iron ore is also declared by the Indian Bureau of Mines (IBM), depending on the grade that is the Fe content, but it comes with a lag - for instance, the September price of iron ore, is declared in December. Hence, if there is a price variation between the IBM-declared price and that declared by mining companies, the difference is paid to state governments, making the entire process extremely complicated, the sources added.
This is the second attempt by the ministry to frame a domestic iron ore index. Several years ago, the ministry had launched a similar initiative to frame an index but the exercise was aborted as grant and renewal of mining leases to private miners had got caught in litigation and opposition from some iron ore-bearing states.