A day before the government’s Vote-on-Account, Union commerce secretary Rajeev Kher has asked the finance ministry to withdraw the 5 per cent export duty on iron ore pellets saying it was levied on a “misplaced” perception.
The finance ministry had on January 27 imposed 5 per cent export duty, endorsing the view of the steel ministry that iron ore was being exported in the garb of pellets. The move has been opposed by the leading iron ore pellet producers in the country.
Led by state-run Kudremukh Iron Ore Company Limited (KIOCL), Pellet Manufacturers Association of India (PMAI) has strongly protested the duty which they contend would kill the pellet producing industry.
The commerce ministry believes that the protests by pellet manufacturers merit consideration and the export duty needs to be rolled back.
“Any argument that domestic steel industry is getting starved of pellets is misplaced as surplus capacity exists in the country. Neither is pelletisation capacity under stress on availability of iron ore fines for domestic steel industry constrained…We urge you to reconsider the decision to impose the export duty,” Rajeev Kher wrote to finance ministry’s expenditure secretary Sumit Bose on February 7.
Chairman of the Parliamentary Standing Committee on Steel Kalyan Banerjee has also demanded, earlier this week, that unless the export duty is withdrawn, employment will be direly impacted.
He said that based on the government’s promise to encourage value addition, a large number of industries made huge investments. By imposing the duty, the government seems to be backing out in its promise, which it should not do, he told finance minister P Chidambaram in a letter. Banerjee has convened a meeting with top steel ministry officials on Monday afternoon to discuss the plight of KIOCL following imposition of the duty.
“Export duty on pellets is a move that has no winners. It will be a crippling blow to Indian Steel and Mining industry’s ambition to position itself as a major player in the value added products,” said JSPL CEO Ravi Uppal.
Essar Steel chief commercial officer Shivramkrishnan Hariharan said the company has significantly been affected due this imposition of this sudden imposition export duty on pellets.
Similarly, UK-based Stemcor’s India subsidiary Brahmani River Pellets Limited’s MD ND Rao said his firm is currently operating at below 50 per cent capacity and is not able to reach break-even point due to poor domestic demand.
“The levy of 5 per cent export duty is like adding fuel to the fire on pellets producers’ problems. The U-turn of government policy change will lead to eventual shutdown of merchant beneficiation and pellet plants due to low demand of pellets in domestic market, since most of major private sector steel producers have come up with their own pellet plants,” he said.
KIOCL chief Malay Chatterjee said his company had launched an export portal some time ago. But it may have to be closed down as the response is poor and the margins are heavily squeezed.
It is learnt that KIOCL employees’ unions have shot off letters to steel ministry protesting the imposition of export duty. Top office bearers of PMAI argue that the steel ministry should have at least considered the impact to KIOCL while pushing for the duty, which was imposed immediately.
More interestingly, the steel ministry itself is believed to have opposed imposition of duty on pellets in August 2013. “What went wrong in five months that the duty had to be imposed?” a PMI official asked. Out of an installed capacity of over 75 million tonne, barely 25 MT is domestically consumed.
According to the companies, of a total production of 75 million tonne, barely little over 1 MT is exported. According to the PMAI official, out of the roughly 80 pellet plants, around 30 would find their operations unviable on account of the duty.