15 16'N 76 26'e: Hospet, a small, dry, dusty town 353 km northwestof Bangalore, in Karnataka's Bellary district. A few thousand peopledo look up the co-ordinates on the map every year; Hospet is eight kmaway from the ruins of Hampi, all that remain of the VijayanagarEmpire that flourished in this part of the world between the 14th andthe 16th centuries ad, the nearest outpost of civilisation fortourists keen to get a whiff of history. Yet, tourism has nothing todo with the boom currently on in Hospet (literally, new town); thereddish dust that falls off the perilously overloaded trucks thatnegotiate the town's lunar landscape, and which is eagerly scooped upin pans by the populace, does. The dust is a mixture of sand, rocks,and fine iron ore and is the closest you can get to panning for goldin Hospet. In 2005-06, iron ore exports from the Bellary districttotalled 35 million tonnes; India's total exports of the commodity,80 million tonnes. The lone branch of the State Bank of India inHospet handled foreign-exchange transactions worth some Rs 1,400crore (almost all of it, inflows) in the same period. For a town witha population of around 150,000, that's a bit. The rich of Hospet andBellary, the eponymous town that's the largest in the district,mining magnates mostly, have it all: mansions, cars, aircraft, evenpolitical currency-the buzz in the two towns and in Bangalore is thatthe ruling government in Karnataka, the H.D. Kumaraaswaamy-ledalliance of the JD(S) and the BJP, is propped up by the mining lobby.That roster of achievements is no mean feat for a district that isamong the most backward in the state.
Bellary isn't exactly the most salubrious place on earth. Insummer, the thermometer can touch 46 degrees (Celsius) in the shade.Rainfall is scanty. The land is rocky and not suited for agriculture.What the district lacks in terms of these, however, it makes up withan abundance of mineral resources, both metallic (think: iron ore,manganese ore, red oxide, copper, lead, even gold) and non-metallic(quartz, limestone, granite and the like).
Iron ore isn't a rare mineral in India; it is also available instates like Orissa, Goa, and Jharkhand. If Bellary's ore has anythinggoing for it (and it has), it is the grade, or the proportion, byweight, of ferrous content. This number is between 35 per cent and 50per cent for ore available in most parts of India; it is 67 per centfor that in Bellary. "The haematite ore (chemical composition: Fe2O3)available here is ideally suited to making steel as opposed to themagnetite (Fe3O4) ore common elsewhere," explains Meda Venkatiah,President, Mining Engineers Association of India. It is also easierand less expensive to remove the impurities in higher-grade ore andconvert it to steel. Hospet's boom, however, wouldn't have been ifseveral things hadn't happened.
The first was China. Although the country had been importing ironore for some years, it was only in 2002, spurred by a boomingeconomy's near-insatiable appetite for steel, that it really startedbuying in some volume. In the four years since, China's steel-makingcapacity has grown from 130 million tonnes a year to 350 milliontonnes.
The second was the preference the Chinese had for fine ore (termedFines in industry lingo). Japan, which along with South Korea, was alarge importer of iron ore before China emerged on the scene,preferred lumps (rocks or ore between 40 mm and 200 mm in diameter).The third was the spurt in ore prices, engendered, in large part, bythe first factor, China's hunger for the commodity: from around $16(Rs 752) a tonne in 2001, ore prices touched a high of $95 (Rs 4,275)in February 2004 and currently move between $45 (Rs 2,070) and $52(Rs 2,392).
The last was the government's decision, in 1986 to allow companiesto directly export ore without routing it through the state-ownedMMTC (formerly Minerals and Metals Trading Corporation), oneinfluenced by years of lobbying by Abheraj Baldota, a now-deceasedbusinessman originally from Pune. "Some of the strictures imposed onus while permitting us to export-not being allowed to export tocountries with whom MMTC was already doing business-turned out to bea blessing," says Narendra Kumar Baldota, Abheraj's son and now theChairman and Managing Director of MSPL (formerly Mineral SalesPrivate Ltd). And so, in 1997, MSPL bagged its first order, a smallone, from China.
It doesn't take much to mine iron ore. Anyone wishing to do sowould require mining licences, still sometimes granted as a favour bythe political establishment, some mechanised earth digging equipment,and a logistics network that can ship the ore to the nearest port.Demand (from China) and soaring prices ensure success. For instance,in 2005-06, MSPL exported 6 million tonnes of ore and earned a netprofit of Rs 450 crore on a turnover of Rs 1,100 crore.
It isn't just the Baldotas of MSPL who are working the new alchemyof turning iron to gold to their advantage; in 2005-06, Santosh KumarModi's Bellary Iron Ores Pvt. Ltd and vg Mines Pvt Ltd exported 2.2million tonnes of ore and earned a net profit of Rs 150 crore onrevenues of Rs 560 crore. Sajjad Wahab's KMMI Group exported 3.2million tonnes and registered revenues of Rs 1,500 crore (the manwill not share information on profits). And PVG's Prasanna V. Ghotagehas built a Rs 800-crore company (net profit in 2005-06: Rs 65 crore)around managing the logistics need of the mining firms; he commands afleet of 3,000 trucks, two railway rakes (each with 58 wagons, andeight more rakes are on the way), and goes under the entirelyunderstandable moniker of 'logistics king' in this part of the world.Bellary is landlocked, and the ore has to be transported toMangalore, Goa, even Chennai, to be shipped out.
There's visible sign of all that money in Hospet. The Baldotashave spent Rs 10 crore on a Cessna single-engine turbo-prop andordered a Cessna Jet cj1 at double the price (they have also built anairstrip). "It is a business requirement, not a luxury," says RahulBaldota, Executive Director, MSPL, and Abheraj's grandson. BellaryIron Ore's Modi is an auto aficionado and boasts a garage of 14 cars,including a VW Beetle convertible that is the latest addition to thefleet and the current favourite. He travels around in a P68C, a six-seater twin-engine aircraft but on the day this reporter meets him,is finalising a deal to acquire a Beech King B2-100 twin-engineaircraft for Rs 23 crore. And KMMI's Wahab has a home gym that couldbe straight out of the pages of an international fitness publication.
Still, Bellary's mining magnates are uncomfortable talking abouttheir wealth. KMMI's Wahab is unhappy with a report in somenewspapers that the district's mine owners have ordered between 25and 30 helicopters. "That is simply not true," he says. He shakes hishead to express his feelings and adds, "This is a small place and it(such reports) can create problems."
One problem is extortion calls from the underworld. Modi, forinstance, asked for and has been accorded 24X7 police protection forhimself and his family. "There were some problems," he admits,hinting at the calls, "but everything has been sorted out now.""There has been plenty of trickle-down wealth," adds Srinivas Rao,Managing Partner, Sri Srinivasa Minerals Trading Company (2005-06revenues: Rs 160 crore). "But there is a lot of poverty in thisarea."
Mineral wealth, like spectrum, is considered a national resourcein India, which is why companies wishing to mine iron ore need toacquire mining licences from the government (the state government ofKarnataka in this case). Most mining magnates are politically wellconnected. For instance, Santosh Lad, whose family runs V.S. Lad andSons, a mining firm, is political secretary to H.D. Kumaraaswaamy,the current Chief Minister of Karnataka. His cousin Anil Lad, whoalso has interests in the mining business, is a member of the state'slegislative assembly (an MLA; he belongs to the BJP). And the Memberof Parliament (MP; also BJP) from Bellary, Karunakara Reddy, alsocomes from a family with interests in mining. Santosh Lad seesnothing strange in this and insists that his family entered miningfirst, politics later. "Mining is just a business," he says."Politics is to serve the people."
Bellary is also high up in the list of preferred postings for abureaucrat. The district is witness to rampant illegal mining ongovernment land, and it pays to look the other way when such work isin progress. Most major mining companies attribute such activity tosmall-time buccaneers, but a senior bureaucrat insists that "illegalmining is rampant and several hundred crores of mineral wealth isbeing looted (every year)". He adds that the government itself hasbeen propped up with money from the mining lobby. The state's DeputyChief Minister B.S. Yediurappa pooh-poohs the allegations. "Illegalmining, wherever it is happening, will be stopped," he says. "We willtake strict action against the offenders." In the past year, 242cases of illegal mining were registered and a fine of Rs 1.42 crorelevied. However, the state government is yet to take a call onincreasing royalties being paid by the miners to it, Rs 27 a tonnefor lumps and Rs 19 for fines (as compared to export market rates of$52 and $45, respectively.)
In a bid to enter the corporate mainstream and earn some respect,Bellary's billionaires are pulling out all stops. The Baldotas areinvesting Rs 2,200 crore in an integrated speciality steel plant.MSPL has already filed a Red Herring prospectus with the Securitiesand Exchange Board of India and will launch a public offering to sella 20 per cent stake "once the markets settle down", according toNarendra Kumar Baldota. The money, he adds, will also help thecompany acquire mines in other countries. Modi has already investedRs 100 crore in a beneficiary plant, a pelletisation unit, and asponge-iron facility. kmmi's Wahab owns a sponge iron plant and steelmills. And while some of the others are investing in steel plants,Srinivas Rao is planning to invest in a chain of hotels across thestate.
Will the party continue? The mining magnates think so, unless theChinese economy slows down. "Even then," says Wahab, "present priceswill continue." And reports that India may ban the export of high-grade ore as it tries to increase steel-making capacity from 42million tonnes a year now to 110 million tonnes by 2020, claims RahulBaldota, are part of the "scare-mongering" tactics of a "powerfulsteel lobby that has its own vested interests". And when it comes tolobbies, Bellary's billionaires can probably hold their own.
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