Should Mining remain in Public Sector ?

The headline news in todays’  Hindu is “Centre gives big push to disinvestment.” 

In a major thrust to the disinvestment programme, the Cabinet Committee on Economic Affairs (CCEA) on Thursday decided that all listed Central Public Sector Enterprises (CPSEs) would offload 10 per cent of their holding in the public domain and all unlisted profitable state-owned entities should go public.

The decision will have a bearing on the mineral major NMDC and MMTC as the public shareholding in these companies is 1.62 and 0.67 per cent.

Normally, I would have welcomed this news, just like the way many stock-analysts have. Because, I have held the view that the government has no business to be in business, except a few strategic sectors. Yet, some of the recent events make me rethink about my view, particularly with reference to mining and minerals sector, to which both NMDC and MMTC belong.

Firstly, the news of the raids on Madhu Koda, the former Chief Minister of Jharkhand and also the Minister of Mines in the Arjun Munda BJP government. Madhu Koda is accused of massive corruption, involving thousands of crores. In an article on Madhu Koda, Times of India says :

Madhu Koda’s meteoric rise would have normally made for a heartwarming story. Once a labourer in iron-ore mines, he won assembly elections from

Jharkhand in 2000. Five years later and only in his mid-thirties, he was appointed state minister for mines in a BJP-led government. From 2006 to 2008 he was the Jharkhand chief minister. But now Koda stands accused of being part of a massive corruption scandal and faces the possibility of arrest.

Although, the investigations are still going on, it is safe to assume that in the mineral-rich Jharkhand, Koda made his wealth from kickbacks on mineral rights.

Miles away in the southern state of Karnataka, the BJP Government of BS Yeddyurappa is facing a huge crisis, where the Reddy brothers have withdrawn support to the government. On Reddy brothers’ contribution to the BJP government, Tehelka reports :

Karunakara, Somashekhar and Janardhan Reddy along with B. Sriramulu (a close associate and virtually a part of the family) played a crucial role in first helping the BJP garner 110 seats, and later by playing a key role in securing the support of the six independents to help Yeddyurappa realise his dream of heading the first BJP government in Karnataka. It is reported that the Reddy brothers, who made their millions mining iron ore, paid the independent candidates Rs 25 crore each in return for their support to the BJP government.

In the same article, the rise of the Reddys is chronicled.

Who are the Reddy brothers and how did they come to dominate Karnataka’s political scene? Sons of a police constable, stories abound of the time when the Reddy brothers criss-crossed dusty Bellary roads on a twowheeler as they attempted to establish (and later save) a non-banking financial institution,Ennoble Savings and Investment India Pvt. Ltd. The company wound up in 1998, with complaints of fraud and cheating to the tune of Rs 200 crore.

Their rise in political circles mirrored their rise as mining magnets, cashing in on the international iron-ore export boom that hit the region. As managing directors of the Obalapuram Mining Company, the Reddy brothers oversee mining operations in Anantapur (in Andhra Pradesh), a district bordering Bellary. Sriramulu is managing director of the same company. When China started to import iron ore for its rapidly growing infrastructure needs, the Reddy brothers catapulted to the big league. Their assets are known to run into thousands of crores of rupees; in an Income Tax department raid in October 2007, the Reddy brothers reportedly paid a few crore rupees as dues. A much talked about asset is the fleet of helicopters that the brothers use frequently, often lending them to the BJP as well.

FOR MANY, the rise of the Reddy brothers signifies a tale beyond the pauper to a king story. Says Gauri Lankesh, editor of Lankesh, a leading independent weekly in Karnataka, “It is ridiculous to reduce it to that or to bemoan the entry of unscrupulous elements into politics. Let’s not forget that the political influence that the Reddy brothers wield today is a consequence of the opening of the export licences in the mining sector. Nobody draws the link between the stench in politics thanks to mining and real estate magnates and the economic policies of liberalisation that the country is following. Bellary and the Reddy brothers are merely a microcosm of the meshing together of the political and economic elite.”

Unrelated to the above, but, in the same iron-ore industry, the Anil Agarwal owned Sesa Goa is facing a SFIO probe reports Business Standard :

The government has ordered the SFIO to probe into mismanagement and financial irregularities in Vedanta Group-owned Sesa Goa and its subsidiary Sesa Industries (SIL), the company said today.

“The scope of (SFIO) investigation include looking into the state of affairs of the company and its subsidiary Sesa Industries Ltd, in respect of mismanagement, malpractices, financial and other irregularities,” Sesa Goa said in a filing to the Bombay Stock Exchange.

The jury is still out on Anil Agarwal’s meteoric rise, whether it is his ability to turnaround public sector companies like Hindustan Zinc and BALCO or his ability to befriend high and mighty in India and abroad to buy public sector assets below their intrinsic value. There is no doubt that his rise from the Patna lad who left school at 15 to become the owner of 10 bn $ Vedanta resources is clearly linked to the Mines and Metals industry. 

In a column in Business Standard, Latha Jishnu quoted Raghuram Rajan, the Chief Economic Advisor to the PM,

“Too many people have gotten too rich based on their proximity to the government. If Russia is an oligarchy, how long can we resist calling India one?” It is his contention that reforms have created new sources of rents for the establishment, specially from the allocation of scarce national resources. This means that barring a few exceptions most of India’s billionaires have been created through sweet deals in land, mining, coal, oil and gas.

Madhu Koda, Reddy brothers, Anil Agarwal, all examples of billionaires who have a rags to riches story and their wealth comes from sweet deals in mining.

What is better ? National wealth which lies underground being given away for exploitation and development  in the name of privatisation through sweet deals to crony capitalists  leaving the country and its citizens poor, or let this industry be with the Public Sector, even if it is inefficient and  corrupt ?

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3 thoughts on “Should Mining remain in Public Sector ?”

  1. Good article.
    Add to the list of Koda, Agarwal and Bellary Reddys the names of Santosh Mohan Dev, LN Mittal (Bailadila episode), Mukesh Ambani (KG Basin Gas and ONGC episode) who are shadow players in the same space and who play ata much bigger scale.

  2. I vote for the mining to remain in the public sector in our context for the present. We need to tighten the regulations and minimize the scope for scandals. Get in Environment Ministry to stop the reckless plunder. It is not the easy money that should bother us in the context, but more of what the easy money does, when in hands of people like ‘Reddy’ of AP and their cousins in Karnataka, that makes the issue uncomfortable. As to harnessing the natural resources for profit, well, business is all about that. Infosys and Wipro harness the natural resources too – technical manpower, in the context. It is job in AC rooms and mining is all about heat and dust. Enterprise required to make a margin varies and, so also, the margins and the risks.

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