Anatomy of Bellary mining loot: Efficient system of corruption to mine, store and transport iron ore

The barons of Bellary called it the ‘zero-risk system’. It was a long, superbly organised supply chain to carry out what was, even by our elevated standards, a loot on an extraordinary scale. Police officers, forest officers, customs officials, government clerks, mining inspectors — they were all in the know and on the take. And all of it with one single objective — to feed to the exploding global demand for iron ore, which between 2006 and 2010 tripled to $150 per tonne. The players even had a codename for the illegal ore they carried away — they called it ‘zero material’.

In his report, Justice Santosh Hegde nails the personas of course — Karnataka chief minister BS Yeddyurappa, the Reddy brothers and companies such as JSW Steel, Obulapuram ( owned by the Reddy brothers) and state-owned NMDC. But what he does above all, is document a smooth, remarkably efficient system of corruption to mine, store and transport iron ore. ET on Sunday decodes the system.

What’s ‘Illegal’ About it?

Under the law, all miners can only mine up to a certain amount of ore per year. If they mine ore above and beyond these amounts, it is ‘illegal’ ore. Also, any ore transported without paying royalties to the government, or without appropriate transport permits to carry the ore, is also illegal.

In Bellary, miners dug out more ore than they were allowed to, transported it without paying royalty, and without the appropriate permits.

Digging it Deep

73 lakh tonnes of illegal ore was mined over 14 months from just 11 mines

The total value: Rs 1,849cr

The ‘Mining Group’

After 2008, Hegde documents a new phase — the rise of a powerful mining cabal, of whom the Reddy brothers were part, which aggressively moved to take control of mining leases from others, dig out the ore, and transport it safely to ports

Rigging permits

Three to four permits, issued by different departments, were needed to get the ore to the ports. Each of these permits had to be forged and pliant officials paid off

The ‘Zero-Risk’ System

A single middleman assumes the entire risk of transporting illegal ore safely from mine to port, including paying off all officials on the way. The ‘risk amount’, essentially an insurance premium paid to the middleman, was Rs 75-200 per tonne. Just one player, a man called K Mahesh, made Rs 40 crore for providing such ‘insurance’

Underinvoicing exports

Many exporters fooled the RBI and banks into believing that they had received the payments for the ore they shipped. In fact the payments were never brought back, and stashed in tax havens overseas. Hegde criticises the RBI for not administering the export payments system properly