The unviable method of determination of average sale price of metallurgical grade bauxite is a big factor in bauxite mines not being auctioned successfully
As claimed by the concerned coal and mines minister, this new law is a step towards attaining mineral security of the nation
By Ramesh Chandra Mohanty
Aluminium and its alloys are being used right from domestic appliances, electrical conductors in transmission lines, to building and construction, automobile, defence, aerospace industry as well as myriad other critical applications. It has significant strategic implications in realising the dream of Atmanirbhar Bharat and India’s vision to become a $5-trillion economy. Bauxite has no substitute, and being the only ore used for aluminium production, the availability of bauxite plays an important role in growth and development of the aluminium industry.
Shortage of metallurgical grade bauxite in India was a concern up to the 1970s, for which extensive exploration was taken up by the government, which led to the discovery of bauxite along the east coast of India. With that, India suddenly became an important destination with prospects for growth and development of the domestic aluminium industry.
For the domestic aluminium industry to reach its full potential and become self-reliant to meet India’s increasing consumption, it will need a fresh investment of approximately Rs 2.4 lakh crore. Consumption of aluminium in India is expected to double over the next five years, resulting in significant forex earnings for the country through the export of aluminium value-added products. In addition, the aluminium industry is also likely to create an additional 10,000 SMEs and 24 lakh jobs in the downstream sector.
However, despite all available resources and a thriving marketplace, the lack of progress on successful bauxite mine auctions is greatly hindering India’s opportunity to become a global manufacturing powerhouse.
It is crucial to note that despite India’s abundant bauxite reserves of almost 4 billion tonnes, the country needs to import bauxite to meet its aluminium production requirements. It is extremely disheartening to see that one of India’s most abundant ores, the fifth largest reserves in the world, has caused an estimated forex loss of over $400 million dollars in the last five years alone. And this forex loss will continue unabated unless India can successfully auction bauxite mine leases and increase production of existing mines by at least 50%.
Once this potential to exponentially enhance bauxite production in the country is utilised, unnecessary bauxite imports will be curbed, rendering the domestic aluminium production competitive and enhancing local employment. Case in point, the opening of a single bauxite mine has the potential to generate over 10,000 livelihood opportunities and can generate over Rs 5,000 crore worth of revenue for the state.
It is alarming to see that over the last five years, despite the steady rise in demand and consumption of aluminium, there has been no successful auction of any metallurgical grade bauxite mine, since the inception of the MMDR Act 2015. The unviable method of determination of average sale price (ASP) of metallurgical grade bauxite that is calculated from the selling price of the end-product, i.e. aluminium, is a big factor in bauxite mines not being auctioned successfully. The author is of opinion that due care must be taken while calculating ASP. In fact, ASP of any mineral should be calculated on cost incurred on mine-gate basis. Unfortunately, the current method includes costs beyond ex-mine expenditures such as logistics, transportation, loading, unloading, rent for the stocking yard, charges for sampling and analysis, etc, resulting in a grossly inflated cost of over 300% to 400%.
This pricing abnormality has prevented the successful auction of bauxite mines by various state governments as the current system of bauxite ASP calculation makes the production of aluminium unviable in the country. Because of this, new investments of over Rs 50,000 crore in the aluminium sector have also been put on hold as it shall be futile in the current bauxite ASP structure.
For India to achieve its manufacturing vision, a multi-fold growth in bauxite production from the current 20-22 million tonnes to 48 million tonnes per year is needed to meet the growing domestic requirement. The catalyser in this growth trajectory will be how India taps its vast deposits of bauxite. Despite one of the world’s largest deposits, the possible key to fast-track India’s development is being ignored, as bauxite mining is yet to be prioritised.
Bauxite mining activities have a multiplier effect on livelihood opportunities in the remote and impoverished regions of the country, which, otherwise, have limited potential for other economic activities. Given the employment crisis in the country, the sector could be the key to bringing transformational change and employment avenues in various districts of the country that are seeing migrants returning to their home states, while ensuring India becomes a global manufacturing powerhouse.
The author is a geologist, and former executive director, NALCO, and ex-advisor, Ministry of Mines