Indian state of Karnataka threatens to cancel NMDC’s Donimalai mine lease in levy dispute

Indian state of Karnataka warned NMDC Ltd. (National Mineral Development Corporation) that it will cancel the lease of its Donimalai iron ore mine if the state-owned miner refuses to pay an additional levy on the sale of its ore.

Karnataka’s threat to cancel the lease stems from a dispute between government of India-owned NDMC, India’s biggest iron ore miner, and the state government over its decision to impose an 80 per cent premium on ore sales from Donimalai.

This mine roughly produces 6 million tonnes of iron ore per annum. The loss to the state government is estimated to be around Rs.2,000 crore.

Karnataka levied the premium when it renewed NDMC’s license for Donimalai on 2 November last year. NMDC contested the 80 per cent premium in a letter to the Karnataka government. The company’s earlier license did not include the premium.

The mine primarily supplies ore to India’s biggest domestic steelmaker JSW Steel Ltd, whose shares also fell 3.5 percent after the news.

“NMDC, being a government of India company cannot sustain such huge losses as the operation of the mine becomes unviable and ultimately the closure of operations will become inevitable,” NMDC said in the letter, a copy of which was reviewed by Reuters.

NMDC will lose as much as Rs.1,000 crore or almost 10 percent of its annual revenues, if the state government does not reverse its decision to charge the premium, the company said in the letter to the state government.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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