Mineral Resource Accounts of Goa

Recently, the state of Goa took a very important first step to better managing our shared inheritance of natural resources, which includes minerals. After all, as our National Mineral Policy recognizes, States hold natural resources as a trustee on behalf of the people – you and me – to ensure future generations receive the benefit of the inheritance. In keeping with India’s commitments under the Convention on Biological Diversity (CBD) and the SDGs, there has been a national effort to produce Natural Resource Accounts. The Government Accounting Standards Advisory Board (GASAB) secretariat under the aegis of the Comptroller and Auditor General (CAG) has worked intensively with 29 states / UTs to prepare Asset Accounts on Mineral & Energy Resources of States for the year 2020-21. Goa was one of three pilot studies, and the office of the Accountant General of Goa took the lead. Recently the Directorate of Mines & Geology (DMG) has published the state natural resource accounts for the same year. It makes for interesting reading.

What does the Report say?

The report on the DMG website has some pages missing. From what is available, the report covers six minerals. Legally, three are major minerals – iron ore, manganese ore and bauxite – while the other three are minor minerals – basalt, laterite and sand. Since the state has not conducted any assessment of the available ore, the data from the National Mineral Inventory 2015 prepared by the Indian Bureau of Mines (IBM) was used from which extraction data furnished monthly to DMG by lessees was deducted to arrive at the remaining mineral reserves and resources. For working out the mineral value in monetary terms, since DMG did not have records for grade-wise production or transport, this was compiled from trip sheets. With those caveats (and more later), here are the results.

Physical accounts

While the iron ore proved reserves is 264 million tons, the state has already auctioned off mineral blocks with 233 million tons of reserves, which would imply there is merely 31 million tons left to auction. Considering the materials available for dump mining, this would reach nearly zero. Clearly, the proven reserves are dramatically under-estimated, and the state government must conduct an exercise of gathering exploration and reserve information from erstwhile leaseholders and independently verify this data to arrive at a sensible estimate.

Illegal mining

The Other Extractions column in Table 2 above is essentially illegal mining. Table 3A shows information on illegal mining detected during the year, ten cases in total. One case is of iron ore (559 tons worth Rs.6,95,209), six cases of laterite (at least 39,906 cu.m and 790 stones worth at least Rs.4,19,55,858) and three of illegal sand mining (1,765 M3 worth Rs.22,94,500), adding up to at least Rs.4.5 crore. Not a single paise had been recovered.

Curiously, none of the other tables include sand as there were no sand mining leases. However, this applies to iron ore, bauxite and manganese ore as well. And it is well known that there was rampant illegal mining. It is possible to estimate the quantum and value of illegally extracted sand from the consumption of cement in the state. We hope the next year’s report would carry out this exercise.

Minerals sold

Prior to extraction, the state owns the sub-soil minerals. After extraction, when the minerals are dispatched from the lease, the leaseholder is required to pay the mineral sale consideration, comprising royalty (including dead rent), contribution to Goa Iron Ore Permanent Fund (iron ore only) and auction premia (including upfront payment). The sale consideration is payable prior to dispatch of the extracted ore. Title transfers after payment of consideration and dispatch of the ore. We find in Table 4A (and Table 3 for Basalt and Laterite Stones/Rubble)

Nearly 5 million tons of iron ore worth Rs.316 crore at the mine-head has been dispatched by the erstwhile leaseholders, on which royalty of Rs. 74 crore was due. Surprisingly, while the contribution to the Goa Iron Ore Permanent Fund is a part of the mineral sale proceeds and is 2/3^rds of royalty (10% vs 15% of IBM price), there is no mention of it in the report. Another Rs.50 crore would have been due to the GIOPF. We hope the reports for subsequent years includes the GIOPF.

Note the complete lack of despatch information for basalt and laterite. Also note that the official royalty from laterite is Rs. 2 lakhs, while illegal mining detected is worth Rs. 4.20 crore!

Monetary values

From the physical quantities, monetary values are provided in Table 3. These values are derived using IBM prices for major minerals and the Goa Schedule of Rate for minor minerals.

As can be seen, the IBM price-based value of the iron ore reserves is Rs.38,883 crore, while the royalty on this would add up to Rs.5,832 crore. However, for the first 9 mineral blocks auctioned off, the Value of Estimates Resources (calculated as 12-month average IBM price x reserves) is Rs. 55,277 crore and the estimated royalty from these blocks is Rs.8,291 crore. The total mineral sale proceeds including GIOPF and auction premia adds up to Rs.58,617 crore. This study is a dramatic under-estimate of our mineral wealth. A proper and thorough inventory of our mineral wealth is necessary. Otherwise, it will be easy to steal from us, as is happening with sand and laterite, and was earlier with iron ore.

DMG is failing catastrophically

This is not hyperbole. The Findings of the Study (Para 5.2.3, pages 39-48) make for miserable reading. After all these years, there are still no proper systems in place. These include Non-availability of mechanism to cross check the grades of mines declared by lessees, Mismatches between figures of Royalty received as furnished by DMG and corresponding data of DoA, Absence of proper records for ascertaining remittances received/receivable under various heads such as Royalty, Dead Rent, Surface Rent, etc., from all lessees, [Poor] Status of control and monitoring of illegal mining in the State, and Geo-fencing was not available for any mine in the State.

A horrific summary is provided in 5.1.6 Challenges and limitations (pg 19-20):-

5.1.6.1 Due to lack of complete records, information on minor minerals regarding number of leases which were valid and functioning and the number of leases which had no production could not be ascertained.

5.1.6.2 Wherever returns were not filed by the lessees, the DMG treated such cases as leases without production.

5.1.6.3 As per clarification of DMG the lessees were allowed to declare the percentage of lumps and fines in the ore. The DMG stated that as there was no price specified for ROM (extracted iron ore before processing), the lessees, declared the percentage of lumps and fines in ore and paid royalty based on their own assessment of quality of ore as per norms calculated on IBM rate valid for declared category of iron ore. Challans were generated for payment accordingly at the DMG. The correctness of such declaration made by the lessees was not counterchecked by the DMG or any other certifying authority. Thus, the correctness of grade of ore declared could not be verified.

Grade wise production data has not been furnished till date (September 2022). The DMG need to put in a mechanism for drawing samples from the extractions for assessment of the quality of the ore and verify the correctness of the percentage of lumps and fines declared by the lessees in order to ensure that royalty remitted by lessees are at appropriate rate and there is no leakage of royalty revenue to the Government.

The correctness of IBM rates applied for computation of royalty and DMF paid by the lessees due to lack of data such as exact date of removal of ore, advances received in earlier years and differential payments made later could not be verified.

5.1.6.4 The office IBM at Goa was requested to furnish copies of monthly/annual returns which were mandatorily required to be furnished by the lessees to IBM with a copy to the State Authority i.e., DMG. The IBM, however, did not respond to the request. Hence, the correctness of periodical reporting by lessees could not be counter-checked.

5.1.6.5 There was no system of maintaining authenticated registers for monitoring valid leases/lessee names for the year, lease validity period, register for receipt of counterfoil of transit passes, receipt of monthly/annual returns. Hence, AG’s Office could not verify the correctness of the number of valid leases, ensure monitoring of submission of returns, applicability of dead rent or misuse of transit passes for more than admissible quantity etc. The DMG did not posses the stocks of both major and minor minerals.

Next steps

The report makes a set of 8 recommendations, summarized in Suggested way Forward (pg xiii)

State authorities may ensure compliance of rules by lessees with respect to furnishing of monthly/annual returns. An automated system for capturing the data of supply/dispatch of resources and linking data for use of various stakeholders should be developed. All data pertaining to the process of grant of mining leases, vehicle movement, trip-sheets, etc., should be captured electronically at source. The system should provide for drawing samples from the extractions of mineral for assessing the quality and grade of minerals for ensuring correct royalty payment. Cases of illegal mining needs to be effectively followed up and also information on illegal mining and action taken thereon may also be captured and maintained electronically for future use.

There are Recommendations for improving management of mineral and energy resources of the State and optimization of revenue yields therefrom (Para 6.4, pg 48-49) which suggest a number of further necessary steps to ensure proper management of our shared inheritance of mineral wealth. These recommendations include putting the onus on all elements in the user chain to ensure there is full documentation available, otherwise they become accomplices to illegal mining, and instituting a rewards scheme on the lines of the Central Excise and Customs Department. This para further refers back to the all-India report where Chapter 7 Way forward – To better management of resources (pg 79-88) provides a short, medium and long-term road map for implementation.

And yet still more is needed. Integrity Due Diligence (including fit and proper criteria) for all those who have an opportunity to steal from our shared inheritance of mineral wealth is a minimum requirement. And if we the people have to fulfil our duty to ensure future generations inherit at least as much as we did, we need Radical Transparency from the state so that we have the information needed to verify that our duty has indeed been fulfilled.

Conclusion

We must congratulate the GASAB secretariat, DMG and Accountant General Office, Goa for this very important initiative. While the resulting accounts are important, the journey is much more so. Already, many weaknesses in the existing system have been identified, and a roadmap laid out. As 29 states / UTs go through the same journey, there will be a lot of learnings and best practices shared. This is the first, and most important step towards fulfilling our duty to our children and future generations – understanding what we have inherited, its value and ensuring that they inherit at least as much as we did, ideally as the corpus of the Goa Iron Ore Permanent Fund.

The significance of this report goes beyond minerals. As the scope expands to other natural resources such as water resources, forestry and wildlife, and land resources, this initiative will have much broader impacts as well. We wish this endeavour all success!