How iron disappears in Bellary

Illegal iron ore mining in Bellary district has cost the Karnataka government Rs 3,000 crore (Rs 30 billion) in the last two years. The first part of a series of investigative reports reveals how illegal mining has affected almost every aspect of life in the district.

Karnataka, which has the second largest proven deposits of iron ore (3.5 billion tonnes) in the country, is losing crores of rupees, with illegal mining reaching an all-time high.

Karnataka Chief Minister HD Kumaraswamy has been able to fend off a bribery allegation from a local legislator and mine owner, but a visit to the district reveals that illegal mining continues unabated.

According to an internal investigation report prepared by Karnataka's Principal Chief Conservator of Forests AK Verma, the loss from illegal mining to the state exchequer is estimated to be around Rs 3,000 crore (Rs 30 billion) in the last two years. In comparison, the government earned a paltry Rs 80 crore as royalty (at Rs 27 per tonne of iron ore) in 2005.

The issue has even taken a toll on honest bureaucrats. Two superintendents of police and one chief conservator of forests, who were investigating the illegal mining, have been transferred out of Bellary district in the last three months since the bribery issue hit the headlines.

At Hospet and Sandur, small towns in Bellary district that have rich deposits of high-grade iron ore estimated at 2.5 billion tonnes, the scale and magnitude of illegal mining is clearly visible.

This region has emerged as one of the key producers of high-grade iron ore (65 per cent ferrous) after the Centre, in 1999, permitted the private sector to export iron ore. In 2005, about 30 million tonnes (30.4 per cent of the national produce) of iron ore worth Rs 3,000-3,500 crore (Rs 30 to Rs 35 billion) was extracted from this district legally.

According to Karnataka's mines and geology department statistics, only 64 iron ore mining leases (covering 49,000 hectares) have been issued in Bellary district. But investigations reveal that 12,000 cases of illegal mining have been reported between the year 2000 and now.

The smallest of the illegally operated mines are four to five-acre pits run by private landowners outside Hospet and Sandur. They do not figure anywhere on the state government's mining lease list. These illegal mines are the region's biggest ore pilferers and none has a mining permit or pays taxes and royalty.

A visit to the region revealed that illegal mining from small holdings continues in Bellary right under the administration' nose.

Established Bellary mine owners attribute the boom in illegal mining to the ad hoc practices adopted by some Chinese steel mills. "If one has the right contacts, it is easy to procure a letter of credit (for iron ore supply) from Chinese steel mills.

Armed with these, businessmen land in Bellary to procure iron ore from illegal mines at cheap rates," a leading mine owner with decades of operation in Bellary told Business Standard.

Much of the illegally mined iron ore from Bellary is estimated to have made its way to the Chinese steel mills.

The price of Indian iron ore, which was $17 per tonne in 2000-01, increased to $55 per tonne in 2005-06, after reaching an all-time high of $83 briefly in 2004. This sudden rise in prices of iron ore attracted illegal miners.

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