KOLKATA (miningweekly.com) – The spat between State-run iron-ore miner NMDC and the government of the southern Indian state of Karnataka over the Donimalai iron-ore block has escalated with both sides threatening retaliatory measures.

The Karnataka government renewed the lease of the Donimalai mines in favour of NMDC earlier this month for a period of 20 years, but incorporated a stipulation that the miner pay 80% premium on sales of iron-ore as lease rental.

NMDC has refused to accept the terms of the lease rental and last week suspended operations at the mine. Sources say that the miner could seek legal options to challenge the condition laid down by the Karnataka government.

Escalating the tussle after talks between the two parties failed to resolve the issue, the Karnataka government has threatened to put the Donimalai iron-ore block up for auction and allocate it to a new miner, unless NMDC signs the contract for payment of lease rental as laid down by the state government.

NMDC, in an official statement, said that imposition of a heavy premium on a government company was not tenable in law.

Company sources said that premium on sales revenues as lease rental could be part of a contract in the case a mine was secured through competitive bidding at auctions, but not in the case of NMDC and Donimalai as it was just a case of renewal of an existing mining lease.

“The state government is blinded by the concept of revenue. The Karnataka government has become so greedy that they are looking at short-term revenues. If any government company pays 80% premium it cannot survive. This is legally not valid either. Donimalai is not an auction, but a lease renewal. The issues has to be settled at the level of Karnataka chief minister. The chief minister should be sensible,” NMDC chairperson, R K Tripathy said in a statement.

In retaliation, the state government issued a statement in which it said that the legal department of the Karnataka government had approved the provision for an 80% premium on sales and that the state Cabinet had also approved the final contract papers.

The government pointed out that it had auctioned 12 iron-ore mines in recent months, which entailed successful bidders paying an average 110% premium on sales as lease rental and NMDC too had participated in these auctions offering to pay premiums of up to 95%, but was refusing to agree to a lower premium in the case of Donimalai.

However, the possible legal challenge would hinge on whether payment of premium was legally tenable in the case of lease renewals too, sources said.

Meanwhile, according to the Federation of Indian Mineral Industries (FIMI), the closure of the seven-million-ton-a-year Donimalai mine would result in a 10% to 15% surge in iron-ore prices in Karnataka.

Already, JSW, which operated an 8-million-ton-a-year steel mill at Vijaynagar, Karnataka, and was one of the largest buyers of iron-ore from Donimalai, had firmed up alternate sourcing of the raw material from the neighbouring states of Odisha and Chhattisgarh, going as far as imports to ensure adequate supplies of ore to its steel mill.