Fairness in Mining

Problem

1. Minerals represent great wealth owned in common. It must be used for the common good. However, we are ignorant about our commons and don’t assert our rights as the owner – someone else will deal with it. 
2. Mineral receipts – money the government receives from mining – are easy money for the government. The politicians do not have to raise our taxes, which would face public ire and would need to be justified. This easy money leads to a lack of accountability, which in turn creates our unresponsive uncaring governance.
3. Miners, in collusion with politicians, successfully appropriate most of our mineral commons from the state. Natural resource scams are easily the largest. Corruption explodes.
4. Mining is the largest source of political funding. Politicians have become miners. Miners have become politicians.
5. The result is the resource curse: Everyone chases easy money. Alternatives such as industry, agriculture and tourism wither away. The environment is plundered. Governance collapses. Activists of all stripes are arrested, tortured and killed. Resistance movements turn into civil wars. Truly, “oil is the devil’s excrement“.

Indian Constitution

1. Government title to minerals. Under the India Constitution, the state government owns minerals, not the central government or the land owner (as in the US). Therefore, it is in our public interest that the state of Goa realizes the full value of its mineral resources.

2. Under the Public Trust Doctrine, natural resources “are held by the State as a trustee on behalf of the people and especially the future generations. These constitute common properties…“. In other words, the minerals are a part of our commons, and the state is merely a trustee.

3. When we inherit something, we are simply custodians. We are obliged to preserve the value of our inheritance and pass it on to our children. This is also the Intergenerational Equity principle, ruled part of Right to Life. Minerals are non-renewable inherited assets.

All three principles are rooted in the Indian Constitution. Laws such as the MMDR Act must conform to the Constitution. The state of Goa must implement our Constitution.

An analogy

Imagine we inherit a pair of gold earrings.

1. As custodians for our children, we must prevent the theft of our earrings. There is no income, only worry and expense. An option is to sell our earrings to buy agricultural land. The land will provide us income today while preserving the value of our inheritance for our children.
2. By analogy, if we eschew mining, the mineral will remain intact for our children – provided we prevent illegal mining. If we decide to sell our minerals (through mining), we must create new non-wasting assets of at least equal value.

Mining history

The Goa mining public interest litigation was filed based on a finding of widespread illegalities by a variety of entities, including the report of the Public Accounts Committee of the Goa State Legislature (headed by Manohar Parrikar) and the Commission of Enquiry appointed by the Government of India (headed by Retd. Justice Shah). The litigation was bolstered by over 20 scientific studies demonstrating the devastating impact of mining on our environment & economy of our state and the health and social fabric of our people.

In the course of the litigation, we analysed iron ore mining in Goa using the annual reports of Sesa Goa (now Vedanta India), scaled up using data from GMOEA (Goa Mineral Ore Exporters Association). We found that over an eight year period, we lost 95% of the value of our minerals, Rs. 51,446 crores (~US$ 8.5 billion). We lost 2 years of income in 8 years. The loss was twice the total state revenues for those years. Each man, woman and child in Goa lost Rs.3.7 lakhs (~$5,800). 

Note that since minerals are a part of the commons, i.e., owned by all of us, this loss is effectively a per-head tax – everyone lost equally, and a few got very rich. This is not trickle-down economics, it is gush-up economics. It is a highly regressive redistribution of wealth. It is anti-socialist, contrary to equality, and contrary to Article 17 of the Universal Declaration of Human Rights.

We have found similar issues in iron ore, coal, oil & natural gas elsewhere in India. As royalty rates are usually set by trying to attract investment into the sector, countries race to the bottom. Therefore, it is very likely that similar losses are present globally. It is a significant driver of the growing inequality across the globe.

Corruption & Incentives

The miners should have earned a reasonable return, estimated generously at 20% after tax return on assets (Rs. 3,138 crores ($0.5 bn)). In reality, the miners profited by an additional Rs. 32,381 crores ($5.4 bn) after tax, 10x the reasonable return, and nearly 14x of what the state received, Rs. 2,387 crores ($0.4 bn). In fact, the miners took away more value from our minerals than the entire state revenue receipts from all sources for those eight years, Rs. 27,402 crores ($4.6 bn). Even the Centre benefited by Rs. 19,065 crores ($3.2 bn), eight times more than the state! This is a rapacious plunder of public common inherited wealth. The people and future generations are the losers.

Not surprisingly, the Shah Commission reported “From the inquiry conducted by this Commission, it is apparent that all modes of illegal mining, as stated in the above Notification, are being committed in the State of Goa.” and “It is pertinent to state here that such illegal act can’t happen without connivance of the politicians, bureaucrats and lessees. There is a complete collapse of the system.”

The Goenchi Mati campaign demand

Mining is inevitable in the present economy. Mining will give rise to significant financial wealth. If we do sell our inherited minerals, we must ensure that our children inherit all of its value in common. Keeping the wealth away from everyone else – miners, politicians, government and the people at large – is critical. Also, people need to tangibly benefit in order to be motivated to prevent theft of our commons. Keeping this in mind and drawing from global best practices, we demand:

1. Zero loss mining – Losses while selling our assets is unacceptable. The State of Goa must ensure that it captures the full value of our minerals, i.e., zero loss. This is in our public interest.

2. All receipts from minerals must be treated as capital receipts (sale of assets). At present, governments treat mineral receipts such royalties as windfall revenues, lottery winnings to be blown up. In reality they are our inheritance, and must be saved for our children. This is usually achieved through fiscal rules, for instance in Norway & Botswana. A more appropriate solution would be to change the International Public Sector Accounting Standards. If we treat mineral receipts as capital receipts, then the volatility in government revenues from minerals will be eliminated. Volatility is perhaps the single most important source of the Resource Curse.

3. All receipts from minerals must be deposited into a Future Generations Fund, invested professionally. A Future Generations Fund is simply a Permanent Fund. Like our minerals, it is held in trust by the state with the people and future generations as the beneficiaries. It is an endowment fund whose income is reinvested ensure that the principal is fully compensated for inflation. This makes it a non-wasting asset. The Government Pension Fund of Norway is a great example for us to emulate. 

In the Goa mining case, the Supreme Court of India ordered a new levy of 10% of the value of the iron ore be collected and be deposited into a new Goa Iron Ore Permanent Fund. The fund is for Intergenerational Equity and Sustainable Development. This is the first Permanent Fund in India. This is also a judicial first globally.

However, it does not go far enough. Historically, zero loss would require capture of over 60% of the sale value of the mineral. And the state must deposit all of this into the Permanent Fund – at present, it fritters away the royalties it receives. These principles should not be restricted to iron ore – why not bauxite or coal for example. We specifically recommend the Goenchi Mati Permanent Fund.

4. Since we own the fund in common, all the real income from the fund (after reinvesting for inflation) must be distributed equally to all as a Citizen’s Dividend, as our right of ownership. This is like the Alaska Permanent Fund Dividend. One principal goal is to create a stake for the citizen in their minerals. The other principal goal is to leave the state as a non-mineral state – no incomes from minerals. This will force better governance as our politicians would have to justify higher taxation to us, instead of simply selling our inheritance cheap.

5. Mechanics of implementation: As recommended by Chanakya, mining can be done by the state. It can auction off our ore as well as the raising contract on a per ton basis. The investment and administrative model of the National Pension Scheme can be modified or built upon for the Permanent Funds. The distribution of the Citizens’ Dividend can use the Jan Dhan – Aadhaar – Mobile platform. 

We have made detailed representations to the state of Goa as well as the center.

How is this fair?

1. Miners earn a reasonable profit (our calculations assume a 20% post tax return on assets)
2. The full costs of mining are paid, including to the mining dependent
3. The state fulfills its constitutional duties as a trustee
4. The inheritance of our future generations is protected
5. We the people benefit from the Citizen’s Dividend, provided we have truly acted as custodians of our inheritance

It is fair, just, right, moral, ethical, and implementing it is our duty to our children.

Other benefits

1. The Citizen’s Dividend, payable to all, will increase equality
2. The Citizen’s Dividend will be the second real embodiment of equality, after the vote
3. Reduced incentives to extract – our state becomes mostly a non-mineral state. Our politicians would not have direct access to either the principal of the fund or its income. This should reduce corruption and the scale of mining
4. States will be forced to tax to raise revenues, leading to better governance.
5. Miners will earn only normal profits, not extra-normal profits. Their incentive reduces while their penalties to ride roughshod over regulations and our human rights remain the same. Clear improvement in our human rights.
6. The Citizen’s Dividend will improve accountability and our voice, and reduce conflict over minerals.
7. We encourage community thinking, not individualism. We encourage framing ourselves as custodians of the planet, our common home, not consumers of nature.
8. It will help our environment by reducing the pressure to extract, and by creating awareness that the environment is also a natural resource that the children need to inherit. We should mention that this aspect is contested.
9. The proposal in totality promotes intergenerational equity as well as intragenerational equity. It will promote not only sustainable development but also inclusive development
10. The Citizen’s Dividend is a form of Universal Basic Income (UBI). UBI itself has numerous societal benefits, the strongest of which is to create a safety net, an alternative to microfinance, MGNREGA and social security. It is being looked at as a solution for a future with far more unemployment due to technology and automation. In this case, it will reduce poverty, improve health, nutrition, and learning, and improve entrepreneurship and village economies. 
11. The Sustainable Development Goals were adopted in 2015. The five key dimensions set out in the preamble are People, Planet, Prosperity, Peace and Partnership. Our proposal in totality can help on all five dimensions – reducing extreme poverty, helping the environment, creating prosperity and conditions for peace, and finding a financing mechanism for the same.

The concerns above are not exhaustive. They and others are valid, and must be addressed. However, if we do extract the minerals, to draw from the popular quote on democracy, our Fairness in Mining proposal is possibly the worst option, except for everything else.

Current Status

1. In the Goa mining case, the Supreme Court also ruled that the last 5 years of mining (23-Nov-2007 – 12-Sep-2012) was entirely illegal. Instead of recovering our mineral as provided by law, the state government has retrospectively renewed the mining leases under the 95% loss regime. In fact, over 60 (out of 88) leases were renewed in the week between the Cabinet approval of the ordinance amending the MMDR Act, and its final promulgation. The Ordinance required mandatory auctions and removed the option to renew leases. Our estimated loss is over Rs. 1,50,000 crores (US$ 25 billion). This amounts to Rs. 10 lakhs ($17,400) a person. A complaint has been filed with the Directorate of Vigilance, Goa, and a new Public Interest Litigation (PIL) has been filed in the Supreme Court challenging the lease renewals (WP Civil 711 of 2015).
2. The Goa Iron Ore Permanent Fund exists with around Rs. 80 crores (US$ 13 million) in it. The detailed scheme is being worked out by the State Government. They have submitted 3 drafts so far to the Supreme Court. All ensure that the Permanent Fund will not be permanent. Our state government is strenuously resisting the idea of the Citizen’s Dividend. The governance also leaves much to be desired. In its current form, the Permanent Fund it will not achieve its objectives. There are international benchmarks for these funds, such as the Truman Index. The best existing fund, Norway, scores 98. The worst scores 17. The second draft submitted by the Goa government generously scored received only 11. The third draft is not much of an improvement.

What can you do?