Businesses brace for tough times as Goa’s iron ore mining industry heads for a virtual shut down, discovers Shoma Patnaik
Of the various hurdles currently afflicting industry in Goa, the problem of iron ore mining is perhaps the worst. The industry in fact is in crisis as it prepares to comply with the Supreme Court order, directing lease holders to pack up by March 15 and close all extraction activities on March 16.
It is an order that has taken mining companies by surprise and thrown them into panic. Leaseholders who were in the mining business for decades are faced by the disquieting fact that they may not be in possessions of their leases in future. They are in a predicament of uncertainty as considerable investments done in preceding years are in danger of fetching no returns.
As per regulations guiding the mining sector in India, granting of new mining leases have to be through auction so existing leaseholders face the danger of losing the high-status mine owner tag.
If the current scenario is bleak for mining companies, it is worse for the dependents, viz. the vast segments of populace living on the industry. The industry shutdown is expected to have a ripple effect on the economy besides the ancillary sectors that are directly linked to mining.
Ground level check reveals that banks, consumer goods sellers, gold jewellers , builders, automobile dealers are bracing themselves for a major slump in demand as consumption takes a hit. The fear of loss in income is acute from the unorganized sector in the mining belt. Garage, restaurants owners and providers of services to mining companies are looking ahead to fold- up of business
According to information, of the 88 leases the active leases currently are 38 leases and they are operated by handful of players. The local iron ore mining industry currently comprises around eight-ten companies. Of this nearly 60 per cent of the iron ore output is by Vedanta Ltd while the next prominent players are Goan companies such as Fomento, VM Salgaoncar, Chowgules, etc.
Goa’s mining industry is facing a crisis because the Supreme Court has quashed 88 mining leases over violation of norms. The order passed on February 7is pretty stringent. It says that, the second renewal of the mining leases granted by the state was unduly hasty, “without taking all relevant material into consideration and ignoring available relevant material and therefore not in the interests of mineral development.”
The SC held that the mining lease holders who have been granted the second renewal are given time to manage their affairs till March 15. However, they are directed to stop all mining operations with effect from March 16, 2018 until fresh mining leases (not fresh renewals or other renewals) are granted and fresh environmental clearances are granted.
The barge industry is expected to suffer very badly after mining shuts down. The industry at present comprises 230 barges of which 45 vessels are owned by mining companies while 185 are privately owned. Barge owners collectively have an outstanding loan amount of Rs 109 crore owed to banks most of which are non-performing assets.
Check reveals that, barge owners who took loans during the period of boom are still struggling with the repayments. They are participating in the one-time settlement scheme of the government and are trying to arrange for funds from asset reconstruction companies. “Some of us are on the verge of clearing up our loans but post-February 7 news we are finding it difficult to raise funds,” said one barge owner.
He added that, with vessels remaining idle it is going to be joblessness to the people employed in barges. Each barge employs about 18 people which mean that the industry directly supports 3,300 individuals. In addition there is indirect employment to ship repairers, unorganized labour, etc.
Mining truck owners are painting a dire picture of the post- shutdown scenario. “Because mining resumed we started our trucks with expenditure of at least Rs 1.5 lakh per vehicle incurred on repairs. We need to earn to recover this money and provide our families,” said one truck owner.
Ground level check reveals that mining industry stakeholders want the industry to revive soon after it shutdown. They want the government to take steps to prepare for auctions and resume operations. Most stakeholders said that they do not care on the lease ownership but want the industry to continue with operations.
This is the second shutdown that the industry is facing. For three years (2012-2015) the industry was closed and the economy slowed down significantly. Stakeholders said that they are fed up of the yo-yo situation in mining and want quick clean up and activities to resume.
For the last five-six years the real estate industry has been under near recession. Starting with the mining closure in 2012 which affected us badly we continued to face setbacks such as the demonetization followed by GST. And in 2018 we are faced with some bad news again. It is difficult to say to what extent the next mining closure will affect housing demand. Although mining had not resumed full-fledged, the industry is a significant one. Its shutdown will definitely have some financial impact on us,”
Jeetendra Desh Prabhudesai, president, CREDAI, Goa
The automobile business for sure will be hit by the stoppage in mining. In the previous closure our business was down 30-40 per cent before it revived slowly. What we faced in 2012 we hope that we do not face again. In the absence of regular income to mining employed, the money flow will be restricted in the economy and purchases of automobiles will decrease.”
Prashant Joshi, dealer, Goa Hyundai and president, Goa Auto Dealers Association
Today the situation among urban co-operative credit societies and in fact even among banks is such that we do not get good borrowers. Most truckers who had unpaid loans during the period of previous closure have paid-off their debt after availing of the government scheme for the mining afflicted. Truckers and people in the mining belt have started borrowing again for weddings, purchasing homes and for genuine reasons. Most of our society branches are in south Goa, in the mining belt. So we expect business to take a hit. The government must commences auctions immediately so that the industry restarts.”
Paresh Kunkolienkar, independent director, Quepem
Urban Co-operative Credit Society
Any industry shutting down is bad news for business and we cannot deny that mining and tourism are Goa’s major industries. We are only hoping that the industry shutdown is not for long. If the closure is not prolonged we are safe,”
Vikram Verlekar, director, Ulhas Jewellers, Margao
Rs 3,500 crore impact on economy: GMOEA
According to the Goa Mineral Ore Exporters Association, a sizeable local population is dependent on mining through various related activities such as earth moving, transport and barge operations.
The trade body has calculated the impact of the shutdown on the local economy at Rs 3,400 crore annually. The break-up of this is: Rs 1,000 on government revenues (royalty, contribution to DMR, GIOPF, NMET, VAT on diesel and GST), Rs 1,000 crore from logistics (barges, truckers, port, stevedoring, others), Rs 1,200 crore on production and extraction of ore by companies and Rs 200 crore as other obligatory costs.
GMOEA estimation of the impact is in a recent letter to the government, which says that, once the industry shuts down all stakeholders will be left without any alternative source of livelihood. The trade body has said that the total contribution of mining (despite the production cap of 20 million tons) on state GDP may well be over 10-12 per cent.
Further, “There is widespread anxiety among the mining fraternity and various stakeholders after the Supreme Court order of Fenruary 7 2018. Appealing for the industry status quo to remain unchanged, the letter says, “The evolution of the mining industry and its manifold impact on the state’s socio-economic milieu has been well publicized in the past as the state biggest earner of foreign exchange. Besides generating direct employment the industry has also developed secondary and tertiary economies of scale which has persisted beyond the mining. Our members have tirelessly worked to build a market within the competitive global scenario.”
Summing up the impact, GMOEA has said that the industry closure will result in
lLoss of direct and indirect employment in the range of 60,000
lFinancial liabilities of small families in terms of loans and borrowings
lTechnical and economic hurdles in terms of safety of mining pits
lIncrease in non-performing assets of financial institutions