Exorbitantly priced Iron ore plots at PPT favoring big miners.
Ever since the new set of rules for auction of Iron ore plots at Paradip Port were applied, Iron ore exporters in Odisha are having a tough time. At a time when the government is discouraging Iron ore exports with high export duty and high freight rates, exorbitantly high rates of Iron ore plots fixed through auction has made survival of the small exporters almost impossible.
With a view to boost its revenues, the Paradip Port Trust (PPT) has come up with new set of rules for auction of plots used for storage of Iron ore inside the port area. As per the rules, auction price of all the plots would remain uniform as all bidders would have to match the highest price offered by the top bidder. Apart from this, the port trust has also enforced some stringent conditions for the bidders.
On January 24th, PPT floated tenders for a total of 46 Iron ore plots including 19 plots with mechanical loading facility. The mechanical plots measure 5,000 square meters (sqm) each while manual plots are of 3,000 square meter size. The base price of manual plots was fixed at INR 9 per sqm while price for mechanical plots was fixed at INR 12 per sqm. However, the premium has been kept at INR 525 per sqm per month for both categories of plots. The bidder has to quote rates over and above INR 525 per sqm.
In spite of low demand of Iron ore in the international market, bidders participated aggressively in the auction due to which the H1 price has gone up to as much as INR 1,371 per sqm per month. Therefore, an exporter has to spend round INR 70 million for the whole 11 month period which is a very big amount for an exporter given the squeezed profit margin they get after paying 30% export duty and higher Railway freight charges. Railway freight rates on Iron ore cargo meant for export is three times more than the domestic freight rate. Earlier, the plots were allotted to traders & miners at fixed cost.
Exporters like BTM Exporters, Jagwani, Kalinga Commercial Corporation, Yazdani, Bonai, Feegrade, RML, RSPL, Kashvi, Liberty, SM Niryat, Bagadiya, Aliza, KK Resources, Royal Line, Sri Lakshmi etc have been allotted mechanical plots in the auction.
According to a port official, there has been no Iron ore export through the port in the first quarter of this financial year and the exporters holding plots are incurring heavy losses. Meanwhile, despite this the port has already issued notices to exporters on cancellation of plots as per the tender conditions, which said that if any party does not make minimum shipment of 19,000 tonnes within four months from the date of issue of allotment order, the plot of the concerned party will be treated as cancelled and dues such as MGT and bid price paid for the year will be forfeited. However, the exporters have requested the port trust to grant few months of grace period keeping in view of the situation prevailing in the mining sector.
So the question arises, why did exporters participate in the bid aggressively even if they were well aware of the current global market scenario and the union government’s policy towards Iron ore exports?
According to a trader & exporter, some big miners like Rungta are responsible for the exorbitant prices of the plots. The miner participated in the auction with 4 different names and managed to get 4 plots quoting H1 prices. As per rules, the other plots were allotted at H1 price to other participants.
“The exporters who are also miners have the advantage that they get Iron ore at the cost of mining which is sometimes as low as INR 100 to INR 200 per tonne. On the other hand, an exporter has to buy the ore from the miners at market price to export. So while miners like Rungta can manage to pay higher prices for the plots, small exporters are bound to earn losses and cannot sustain the competition.”
“As a government owned port, they should give a level playing field for all the players and instead of auctioning plots, they should provide common-use plots to the exporters”, he added.