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CONCEPT NOTE ON OMC ENTERING INTO JOINT VENTURE PROJECTS

WITH MOU STEEL UNITS FOR OPERATING IRON ORE MINES.

INTRODUCTION

1. Orissa Mining Corporation Limited (OMC) was established in 1956 as


a Joint Venture Company of Government of Orissa and Government
of India. Subsequently in 1961 it became a wholly State-owned
Corporation of Govt. of Orissa.

2. The mandate of OMC is to explore and harness mineral wealth of


Orissa and make value addition.

3. As of now, OMC has 35 numbers of Mining Leases granted in its


favour the details of which are given below.

Iron 11
Iron + Manganese 05
Manganese 03
Chromite 11
Limestone 01
Gemstone 04

Besides this, OMC has applied for a number of Mining Leases which
are pending at Government level for consideration.

4. The major minerals mined by OMC are chrome, iron and manganese
ore catering to the requirement of mineral based industries of the
State as well as outside.

5. The growth of OMC has been impressive over these years and today
it stands as the largest State PSU in the mining sector of the country
with a record turnover of Rs. 2085 Crores and profit (Before tax) of
Rs. 1890 Crores in the year 2008-09.

WHY JVC:-

6. In the year 2008-09 OMC recorded 7.8 million tonnes of iron ore
production which accounted for about 10% of the total production of
the State.

7. Almost the entire production of iron ore of OMC came from its
3 major iron ore mines namely Daitari, Kurmitar and
Gandhamardan.
8. Though it has 11 iron ore Mining Leases and 5 iron + manganese
ore Mining Leases, except the above 3 major mines, other Mining
Leases have remained more or less non-operative in recent years.
The main reasons for these Mining Leases remaining non-operative
are listed below:

(a) Obtaining Statutory Clearances

Various types of statutory clearances such as Environmental


Clearance, Pollution Control Board Clearance, Forest Diversion
Clearance, Mining Plan/Mining Scheme, Surface Right, etc. are
pre-requisites for operating a Mining Lease. It requires tremendous
persuasion at various quarters on a sustained basis for a long period
of time. The efforts of the OMC in these matters have been found
wanting due to which only a small number of Mining Leases of OMC
have at present all the statutory clearances required for conducting
mining operations.

(b) Lack of demand for Iron Ore

Production of iron ore by OMC has always been in tune with the
market demand. In the past, there was hardly any demand for iron
ore and therefore production was limited to production to a couple
of mines only. However, due to boom in the steel industries from
2003-04 onwards, the demand of iron ore in the market went up
substantially which forced OMC to step up its production from
3.0 million tonnes in 2004-05 to 7.8 million tonnes in 2008-09.
While OMC could successfully step up its production in the 3 existing
major iron ore mines - Daitari, Gandhamardan, Kurmitar - to meet
the rising market demand, it could not operate other Mining Leases
due to issues relating to various statutory clearances. The market
demand for iron ore is rising day by day due to a large number of
steel industries coming up in the State of Orissa through MoU and
non-MoU routes. Expansion of capacity of existing units is also
adding to the market demand.

(c) Inadequate Exploration Work

Though OMC is an organization of more than 50 years of standing, it


has not been able to completely explore its Mining Leases as yet.
Due to very slow exploration work not only the production schedule
often gets affected but also it becomes difficult to prepare any
future production planning. Moreover, due to inadequate exploration
data, it is difficult to obtain some statutory clearances like Forest
Diversion approval, etc.
(d) Man-Power Issues

OMC is an old organization and there has been no major recruitment


in the organization since___________________. Most of the
senior, experienced and competent employees of various levels have
either already retired or will be retiring soon which will create a big
void in the organization at all levels. Due to various stipulations
imposed by the State Govt. on regular recruitment, OMC is unable
to fill up its critical vacancies. Whatever recruitments have been
done in the recent past are all of contractual nature, which does not
help OMC in a substantial way. The contractual employees always
look for better opportunities elsewhere and leave OMC at the
earliest opportunity. Due to ban on regular recruitment by the State
Govt., OMC has to man some statutory posts by contractual
employees which is objectionable as per various statutes relating to
mining.

OMC is a professional and technical organization with its


employees having long and varied experience in mining sector. Due
to the boom in steel and mines sector in the State, such type of
employees are in great demand by the private industrial houses who
offer very lucrative financial packages to such persons. As OMC’s
pay scale is not as lucrative as its private counterparts, it fails to
attract young talents. It will also be very difficult in future for OMC
to retain its competent employees who would be lured away by
Private Companies.

Under these circumstances, when there is shortage of


manpower in OMC for operating the existing mines, it will not be
possible on the part of OMC to operationalise the other
non-operating mines with the existing staff strength.
(e) Advanced and Scientific Mining

Mining Technology has improved a lot in the meantime and


advanced mining is being practised elsewhere which is not only
cost-effective but is also eco-friendly. However, such mining
practices involve huge initial investment to start with. At present
OMC is operating its mines through agencies who work on behalf of
OMC for raising, processing and transportation of iron ore. The
contract tenure of these agencies vary from 1 to 10 years from case
to case. These agencies being small players are not in a position to
take up advanced and scientific mining which is the requirement of
the day.

(f) Lapse of Lease

As per MMDR Act if a lessee keeps its mining lease non-operative for
a long period of time without any valid reason, the lease standing in
its favour may be withdrawn/cancelled by the competent authority
and would be allotted to some one else. By keeping many of its
leases non-operative, OMC runs risk of losing such mining leases.

Under these circumstances, it is proposed that OMC may be


allowed to enter into Joint Venture mode with MoU signed steel
industries of the State for operating its non-operating iron ore
Mining Leases which will have the following advantages.

i) Advantages to OMC
OMC cannot make these mines operational on its own. By
keeping these Mining Leases inoperative, OMC incurs non-
productive expenses, dead rent, watch and ward,
establishment expenses, etc.

It will help OMC in harnessing the iron ore resources and


thereby earn profit for the organization.

ii) Advantage to the State Government

State Government stands committed to the MoU signed iron


and steel industries for supply of raw-material. Due to various
issues, many of such units have not yet been granted with the
captive iron ore mines. The State Govt. is under tremendous
stress to honour its own commitment failing which the entire
industry in the State may face irreparable loss. At this
juncture, therefore, it would be advantageous for the State
Govt. to direct some of the MoU units to enter into Joint
Venture with for assured raw-material supply.

Operating such non-operating mines will become operative in


the Joint Venture mode, it will lead to collection of additional
royalty and other taxes for the State Government.

Operating such non-operative mines will also lead to


employment generation in and around the mining areas.

iii) Advantage to the JV Partner

The JV Partner will get access to an iron ore mine which will
assure supply of raw-material to its steel units.

Since the Mining Leases already stand in favour of OMC and


some of the statutory clearances for the Mining Leases would
be already available, the gestation period of making such
Mining Leases operative will be very small.

Since a JV Partner will have considerable control over the


mining process, it can introduce modern and scientific mining
which will not only be cost-effective and eco-friendly but also
be in tune with its own requirements.

Under these circumstances, it seems to be a win-win-


win situation for OMC, the State Government and the Industry
Partner if Govt. allows OMC to enter into JV with industrial
partner to operate its non-operative iron ore leases.

iv) Basic Model of the Proposed Joint Venture

Since this is just a concept note on feasibility/desirability of


Joint Venture mode of operation, it is prematured to talk of
the JV model as the detail contours of the Joint Venture has to
be finalized in consultation with the JV partner with due
approval of the State Government. However, a basic model
has been attempted here as a food for thought.

There have been 5 Joint Venture Projects with OMC as per


details in the table given below. Each of the JV Agreement
either signed or proposed have been duly approved by the
State Government. On the basis of these existing JV models,
the broad features of the proposed Joint Venture for operating
the non-operating mines are given below:

1.
2.
3.
4.
5.
6
7.

(v) Selection Criteria for JV Partner

a) Since the State Government has committed the MoU


units for assured supply of iron ore, the MoU units only
may be considered for such joint venture amongst the
MoU units who have already made substantial
investment in the field/have gone into production may
be considered for this purpose. The State Government
is to decide the principle for selection of JV Partner.

b) The various iron ore Mining Leases of OMC which can be


put to JV mode of operation are listed in Annexure-I
with all available details.
Iron - 11
Manganese - 03
Chromite - 01
Lime Stone - 01
Gem Stone - 04
Iron - 11
Manganese - 03
Chromite - 01
Lime Stone - 01
Gem Stone - 04
Iron - 11
Manganese - 03
Chromite - 01
Lime Stone - 01
Gem Stone - 04
NOTICE
FOR
SETTLEMENT OF OLD CONTRACTS

It is hereby notified to all concerned agencies that Contract


Settlement Camps shall be organized by OMC Limited as per the
schedule given below at different Regional Offices of OMC Limited
for settlement of old contracts pertaining to raising/excavation of
ore, wagon loading, transportation, etc. (excluding contracts
pertaining to civil work, material procurement, sales, security, etc.).

Region Date of Camp Venue


Barbil Regional Office 3.2.2010 to RM Office
5.2.2010
Koira Regional Office 19.2.2010 to RM Office
20.2.2010
Gandhamardan Regional 5.3.2010 to RM Office
Office 6.3.2010
Chrome Zone, JK Road 18.3.2010 to RM Office
19.3.2010
Daitari Regional Office 20.3.2010 RM Office

Concerned agencies are requested to attend Contract


Settlement Camps alongwith all supporting documents such as bill
copies, various clearances from OMC/ statutory authorities/ LEO/
local Union, etc. for early settlement of the contracts.

Managing Director
CONCEPT NOTE ON OMC ENTERING INTO JOINT VENTURE PROJECTS
WITH MOU STEEL UNITS FOR OPERATING IRON ORE MINES.

INTRODUCTION

1. Orissa Mining Corporation Limited (OMC) was established in 1956 as


a Joint Venture Company of Government of Orissa and Government
of India. Subsequently in 1961 it became a wholly State-owned
Corporation of Govt. of Orissa.

2. The mandate of OMC is to explore and harness mineral wealth of


Orissa and make value addition.

3. As of now, OMC has 35 numbers of Mining Leases granted in its


favour the details of which are given below.

Iron 11
Iron + Manganese 05
Manganese 03
Chromite 11
Limestone 01
Gemstone 04

Besides this, OMC has applied for a number of Mining Leases which
are pending at Government level for consideration.

4. The major minerals mined by OMC are chrome, iron and manganese
ore catering to the requirement of mineral based industries of the
State as well as outside.

5. In the year 2008-09 OMC recorded 7.8 million tonnes of iron ore
production which accounted for about 10% of the total production of
the State.

6. Almost the entire production of iron ore of OMC came from its
3 major iron ore mines namely Daitari, Kurmitar and
Gandhamardan.

Rising demand of Iron Ore - Inability of OMC to meet the


rising demand
7. Production of Iron Ore:

Production of iron ore by OMC has always been in tune with the
market demand. In the past, there was hardly any demand for iron
ore and therefore production was limited to production to a couple
of mines only. However, due to boom in the steel industries from
2003-04 onwards, the demand of iron ore in the market went up
substantially which forced OMC to step up its production from
3.0 million tonnes in 2004-05 to 7.8 million tonnes in 2008-09.
While OMC could successfully step up its production in the 3 existing
major iron ore mines - Daitari, Gandhamardan, Kurmitar - to meet
the rising market demand, it could not operate other Mining Leases
due to issues relating to various statutory clearances. The market
demand for iron ore is rising day by day due to a large number of
steel industries coming up in the State of Orissa through MoU and
non-MoU routes. Expansion of capacity of existing units is also
adding to the market demand.

8. Since most of the iron ore Mining Leases of OMC remain inoperative
for long years due to want of demand for iron ore in the past,
necessary preliminary field works such as detail exploration,
preparation of Land Use Plan, Mining Plan/Mining Scheme, etc. have
not yet been completed which are pre-requisites for obtaining the
statutory clearances to run the mines such as Environmental
Clearance, Forest Diversion Clearance, Pollution Control Board
Clearance, etc.

9. Though OMC is trying its level best to obtain all required statutory
clearances to make the mines operational, it required a large
number of qualified man-power to complete the field work and
pursue the matter from local administration level to Govt. of India
level for obtaining the approvals. Due to shortage of technical and
qualified manpower - as there has been no substantial recruitment
in OMC for the last _______ years - the efforts of OMC in this regard
are found grossly wanting due to which inordinate delay is taking
place in obtaining these clearances.

10. Therefore, though there is tremendous potential with OMC to raise


its iron ore production substantially to match the rising market
demand, due to the reasons mentioned above, it is unable to step
up its production by failing to open new mines having substantial
deposits.

11. Possible Solution - JV Projects

Since OMC cannot make these mines operational on its own within a
reasonable time period to meet the rising market demand, OMC may
enter into JV projects with private industrial houses of the State
which will have the following advantages.

A) Advantages to OMC

(i) The non-operative Mining Leases of OMC will become


operative which will generate extra income/profit for the
Company. OMC is now making infructuous expenditures on
establishment, watch and ward, payment of dead rent to
Government, etc. for these inoperative mines without
generating any income out of them. On the other hand, by
entering into a JV Project, these mines can be made functional
which will generate extra income/profit for OMC.

(ii) As per the provisions of MMDR Act, continuous non-operation


of any Mining Leases for more than ______ years without any
valid reason will result in withdrawal of Mining Lease granted
by Government in favour of the lessee. By keeping so many
Mining Leases inoperative OMC runs the risk of losing the MLs.
Operating these Mining Leases in JV mode will not necessitate
lapse of lease of OMC.

(iii) OMC and the industrial partner will work in synergy in the
Joint Venture Project. The JV partner can supplement the
efforts of the OMC by bringing in competent person in
completing field works. The JV partner can also pursue various
statutory clearances at every level aggressively with the
batting of OMC and can ensure statutory clearances in time.

(iv) After obtaining the statutory clearances the JV partner can


bring in latest technologies, investment and required
manpower to start mining at the earliest possible time.

B) Advantage to the State Government

(i) State Government stands committed to the MoU signed iron


and steel industries for supply of raw-material. Due to various
issues, many of such units have not yet been granted with the
captive iron ore mines. The State Govt. is under tremendous
stress to honour its own commitment failing which the entire
industry in the State may face irreparable loss. At this
juncture, therefore, it would be advantageous for the State
Govt. to direct some of the MoU units to enter into Joint
Venture with for assured raw-material supply.
(ii) Operating such non-operating mines will become operative in
the Joint Venture mode, it will lead to collection of additional
royalty and other taxes for the State Government.

(iii) Operating such non-operative mines will also lead to


employment generation in and around the mining areas.

C) Advantage to the JV Partner

(i) The JV Partner will get access to an iron ore mine which will
assure supply of raw-material to its steel units.

(ii) Since the Mining Leases already stand in favour of OMC and
some of the statutory clearances for the Mining Leases would
be already available, the gestation period of making such
Mining Leases operative will be very small.

(iii) Since a JV Partner will have considerable control over the


mining process, it can introduce modern and scientific mining
which will not only be cost-effective and eco-friendly but also
be in tune with its own requirements.

Under these circumstances, it seems to be a win-win-win


situation for OMC, the State Government and the Industry
Partner if Govt. allows OMC to enter into JV with industrial
partner to operate its non-operative iron ore leases.

12. Proposed Joint Venture Model

(a) So far there are 5 Joint Venture Projects where OMC has been
associated. These JV projects have different models as given in the
table below.

1.
2.
3.
4.
5.
6.
7.

Drawing cue from the above JV model the basic features of the
proposed JV model between OMC and industrial houses for operating
and non-operating mines of OMC are listed below.
(b) JV with Whom

The State Government may suggest the name of Private Companies


with whom OMC can enter into JV Agreement. Steel Plants coming
up in Orissa through MoU route may be considered as potential JV
partner with OMC.

(c) Iron Ore Mining Leases of OMC for JV Project

Iron ore Mining Leases of OMC which can be put to JV mode of


operation are given in Annexure - I with all available details