Colossal cost of India's Iron Ore Policy:
Constitutional Guarantee of Economic Justice to Public
November 19, 2005

November 17, 2005

Honorable Chief Justice
Supreme Court of India
New Delhi 110001, INDIA

Subject: Constitutional guarantee of economic justice to public, subverted by the State.[1]

Dear Honorable Chief Justice,

This bears reference to my writ submitted to Honorable Chief Justice Lahoti, dated July 17, 2005, delivered by USPS Guaranteed Global Express Mail, which I believe he has received and handed over to the expert committee of the Supreme Court.  I have also submitted supplementary information, subsequently, to Honorable Justice Lahoti.   

The writ here is only an important part of the full set of prayers made earlier.  This one beseeches you to order the governments to stay on exports of iron ore and scarp all the MOUs signed to produce crude steel.  Only your intervention will save the colossal losses to public exchequers and safeguard constitutional guarantee of economic justice to public. 

India is currently exporting 63 million tonnes of iron ore per year.  Our public exchequers get a paltry royalty of $0.075 per tonne, compared to the global spot price of $45-85 per tonne.  This is economic injustice to public.  Our constitution guarantees economic justice to public.  Even the Mineral Act vows to serve the best public interest.  By imposing a piddle royalty structure, the State is thus subverting the Constitution.  The decision makers and their crony industrialists are thus looting public wealth.

A company like the South Korean Pohang Steel Company (POSCO) buys iron ore at market prices to make crude steel for $1000 per tonne at a net profit of $230 per tonne.   Why has the State agreed to receive only $0.075 per tonne in royalty from such a profitable venture?  This is not in the best Indian public interest. 

POSCO and other plants will bear mining and transportation of iron ore from mine to plant site, which will be about $20 per tonne.  But they will take the ore valued at $45-85 per tonne, which means a loss to public of $25-65 per tonne.  In fact, the global market price of iron ore is low now because India is recklessly exporting iron ore.  India has barely 2% of global iron ore deposits.  Yet, the State has been recklessly exporting iron ore. 

The State will now make crude steel for exports.  But by transferring iron ore to the new steel ventures, it will make the public exchequers lose $25-65 per tonne of iron ore at current global market prices.  The new MOUs will dispose off 3000 million tonnes of iron ore to the new steel plants to produce 1800 million tonnes of crude steel over 30 years.  The public will thus lose a staggering sum of $75000-195000 million during the course of the contract at current prices.  This is a conservative estimate of the colossal loss to Indian public due to decisions of the State.  It is because the fiat money around the world is being created recklessly, while iron ore reserves are limited globally.  The dwindling supply and rising demand will make the long run iron ore price in terms of fiat money much higher than the current price used in these calculations.

The State has also forfeited share ownership in the new steel ventures by which the public exchequers would have received dividends from profits distributed in future.  The owned shares could also have been sold in the market to pay off the State’s huge debt burden.  CFD has suggested such policy guidelines long before the State signed the MOUs.  But the State has ignored such public policy proposals, while nonchalantly transferring public wealth almost freely to private parties.

The steel produced under these new MOUs is not needed in IndiaIndia’s current domestic demand is fully met by current steel production of about 36 million tonnes per year.  The State will thus produce steel for other countries and exhaust public’s limited iron ores.  The State will export public’s resources (in the form of crude steel) only to strengthen the rest of the world while turning India weaker, scorched, polluted and denuded. 

The public exchequers will receive VAT only if there is net value addition on the top of production costs.  But these new plants will import coke at exorbitant prices of $120-130 per tonne from countries like China and Australia which tend to gouge prices of their products, while the State in India is ready to give away iron ore almost freely to produce steel for exports because the public does not need the new steel.  The padded up production costs may not add much value to new steel produced to accrue VAT for public exchequers.  The State has slated to locate the steel plants in tax-free Special Economic Zones and so there is no opportunity for the public exchequers to generate export taxes or other forms of taxes.   

Though the steel MOUs, the State is meting gross economic injustice to public and is subverting the Constitution of India.  The MOUs are thus unconstitutional.  The Supreme Court should constitutionally void these MOUs and have an immediate stay in iron ore exports in the best public interest.   

With profound regards,

Sankarshan Acharya

[1] “The State” is as defined in Article 12 and economic justice is as guaranteed in preamble of Indian Constitution.