The iron and steel industry is perpetually changing, due to which there has been a plethora of policy changes since 2007 that govern the transportation of iron ores. However, considering the recent significant changes in the Governmental policies, especially in the Railway sector, the status quo policy of 2007 for transportation of iron ores was replaced by a 2021 policy to accommodate the new functionalities of the iron and steel industry. Thus, this blog post shall analyze the revamped 2021 policy for transportation of iron ores and scrutinize its pros and cons while attempting to explore whether the 2021 policy provides catharsis to the iron and steel industry.
Introduction: Paradigm Shift from 2007 to 2021 in Iron Ore Policy
On 23.03.2007, the Ministry of Railways passed a“Preferential Traffic Order” for realizing the customers’ loading and unloading capacity considering the rakes’ requirements exceeded this capacity. In this Order, the Customers were divided into various priority categories for the allotment of rakes subject to their loading and unloading capacity, infrastructure, and other factors. However, this Order was modified to a policy called the“Programming of Iron Ore Traffic” dated 29.10.2007 (hereinafter “2007 Policy”) because the full potential of the customers was not realized that led to customer dissatisfaction and business inefficacies. Thus, in this 2007 Policy, customers were categorically divided on the Central Board of Trade (CBT) and non-CBT category for enhanced allotment of rakes on a priority basis.
Several demands and representations were being received from trade and Zonal Railways to review the 2007 Policy despite multiple policy efforts. The need to review the 2007 Policy on iron ores was amplified considering the withdrawal of the dual freight policy, the introduction of Goods and Services Tax (GST), and duplication of scrutiny of a plethora of documents by Executive Director Rake Movement of Railway Board (EDRM) Office, Kolkata, though other Governmental Agencies were already doing the same. The factors mentioned above created a need for review because they significantly affected the iron ore business dynamics, due to which the 2007 Policy could not catch up to speed.
Thus, the 2007 Policy was revised and renamed as the“Iron-Ore Policy, 2021” dated 15.01.2021 (hereinafter “2021 Policy”). The 2021 Policy aims to promote domestic manufacture of steel under the “Atmanirbhar Bharat Scheme,” maximize iron-ore loading, leverage existing and create new infrastructure facilities — such as the development of public and private sidings and Private Freight Terminals (PFTs) — to enhance the transport of iron ores and resolve the conundrum of congestion, and attempt to meet the customers’ requirements fully. Considering that, it is imperative for us to scrutinize the pros and cons of the 2021 Policy.
How the 2021 Policy can Provide Catharsis to Iron Ore Transportation
1. Removal of Unfair Customer Categorizations: CBT and Non-CBT
In the 2007 Policy,the allotment and loading of rakes were based on the CBT and non-CBT categories. In the former,those customers were covered who were “integrated steel plants” with a capacity to produce 1 million tons of molten pig iron. Further,they had their private sidings (privately owned and constructed railroad tracks). However, this led to a conundrum whereinnon-CBT customers — falling in the following categories: Wagon Investment Scheme (WIS) category, Priority “C,” and Priority “D” — were neglected and not given equal preference, especially Priority D as they constituted other quintessential iron ore plants like sponge iron, pellet, and sinter plants wherein neither specific number of rakes nor assurance for allotment of rakes was given. In other words, this led to unfair preferential treatment for molten pig iron plants while side-lining other iron ore plants, due to which the low supply of these other iron ores could not match the exorbitant demand.
Thus, to resolve the same conundrum, the 2021 Policy removed the categorization of customers based on CBT and non-CBT categories. Under the 2021 Policy, old and new iron ore plants would be similarly treated for allotment and loading of rakes. This move also increases the probability of meeting the high demand of sponge iron, pellet, and sinter and easing the hard-hit small producers by allowingtheir propensity to earn enhanced revenue.
2. Priority for Movement of Iron Ore and Incentivizing Infrastructure Development and Economic Growth
According to the 2007 Policy, the priority for the movement of iron ore was based on the preferential treatment to CBT customers only after which thenon-CBT customers were preferred in the following order: the Wagon Investment Scheme (WIS) category, Priority “C,” and Priority “D.” Although the focus of this preference was to promote customers that provided maximum traffic (CBT customers), it led to the neglect of customers for other iron ores (non-CBT customers) as earlier argued.
Thus, to resolve this, according to the 2021 Policy, the priority for the movement of iron ores will now be based on the following (with the objective of maximizing the movement of iron-ore through rail) requirements.
Availability of loading or unloading “railway infrastructure” developed by the customer.
- “Nature of movement” between different types of sidings, i.e., based on the nature of the terrain. In other words, it depends on whether the terrain is a hilly area, plain area, desert area, or any other type of area.
This essentially creates a level-playing field because now, even non-CBT customers with adequate railway infrastructure, subject to the nature of the movement, will be given priority and assured allotment of rakes. It also allows the small non-CBT customers, with adequate railway infrastructure (but only for either loading or unloading) to obtain a similar level of priority and allotment, thus, increasing the propensity for them to compete in the marketplace, meet the exorbitant demand, and earn enhanced revenue only to be able to invest in the increase of supply and development of their transportation infrastructure in return. In finality, it incentivizes customers to develop their transportation infrastructure. If the customers have adequate infrastructure, either at the loading/unloading point or both, they will fall under the top priorities for movement of their iron ores, thereby securing them assured allotment of rakes.
However, as the CBT and non-CBT categories stand removed, the 2021 policy categorized the customers owning steel, sponge iron, pig iron, pellet, and sinter plants into the following preferential category.
- Priority 1 – C+ – Customers with private sidings at loading and unloading ends for “domestic manufacture.”
- Priority 2 – C – Customers with private sidings either at loading or unloading ends for “domestic manufacture.”
- Priority 3 – C– – Customers with no private sidings and entirely rely on public sidings for “domestic manufacture.”
- Priority 4 – D – Iron-ore traffic that does not come under any of the three categories mentioned above. This essentially includes all export traffic.
Considering the rising demand from India for the import of iron ores, due to which it has nowbecome a net importer of iron ores, the narrative shifts from imports to “domestic manufacturing” as a result of the 2021 Policy. This can be a step in the appropriate direction to increase India’s ability to become self-sufficient for iron ores and enhance its capacity to meet its domestic demand through domestic manufacturing without heavily relying on imports. Further, exports have not been highly prioritized because of the surge of domestic iron ore prices due to India’s export of iron ores to China and other countriesdespite facing a domestic shortage to meet the domestic demand and supply. Thus, these restrictions on the exports also enable the Indian iron ore plants to focus on enhancing their domestic capacity, capability, and competition.
3. Enabling Ease of Doing Business
According to the 2021 Policy, the customers are at liberty to decide their loading and/or unloading points or combinations of these points as they deem fit for moving their traffic. This essentially promotes the ease of doing business because now, no permission is required to be obtained for choosing such points and combinations, thereby allowing a greater degree of freedom and faster movement of traffic by avoiding the hassle of obtaining permissions through various bureaucratic levels. Further, the manufacturing plants are at liberty to dispatch “low-grade fines, or iron ore rejects” generated during the iron ore manufacturing process, attached only with a self-declaration rather than bulky bureaucratic permissions. Additionally, the customers are free to place “indents” for contractual traffic (General Purpose Wagon Investment Scheme) as they deem suitable. In finality, the EDRM Office, Kolkata, which was “sanctioning” programs for the movement of “iron-ore traffic,”will not have any role in the 2021 Policy. It shall solely be responsible for analyzing the different iron-ore traffic for further enhancement of railway freight loading.
3. Provision of Logistical Support
With rakes being diverted to meet the coal requirement of “thermal power” producers, there is a rising shortage of rakes to transport iron ore, due to which this shortagehas approximately reached up to 75%. Thus, to meet these transportation requirements, the 2021 Policy provides logistics support to allow customers to have the facility of “rake diversion,” rebooking, and short of destination delivery subject to approval from the Railway Board. Further, this logistics support is also provided through automation wherein the Centre for Railway Information Systems (CRIS) shall undertake the updation of the Rake Allotment System (RAS) to integrate the 2021 Policy in RAS. In finality, RAS will generate preferences, i.e., Priority C+, C, C–, or D, for movement of iron ore traffic based on the information and logic entered in RAS as per the framework laid down in the 2021 Policy.
Challenges Surrounding the Iron-Ore Policy 2021
1. Economic Impact from Least Preference to Export Traffic for Movement of Iron Ore
As highlighted above, the 2021 Policy categorized the customers owning steel, sponge iron, pig iron, pellet, and sinter plants into four preferential categories. The least priority, i.e., Priority D, includes all iron-ore traffic that does not come under any of the other three categories in the list of preferential categories. It includes export traffic. The purported reason is to keep up with domestic demand under the “Atmanirbhar Bharat Scheme” and promote “domestic manufacturing” in India.
However, this is problematic because it has a direct impact on India’s economy. The value of iron ore exported from Indiaamounted to nearly Rs. 186 billion in the fiscal year 2020, which was significantly higher than the exports from India in the fiscal year 2019 with about Rs. 92 billion. These numbers highlight the surge in iron ore export from India, leading to the iron ore industry significantly contributing to India’s economic growth. Consequently, the exports would be deprioritized, significantly affecting India’s ability to earn revenue through exports and increasing the propensity to cause a vacuum in the economy. It also impacts India’s strategic relationships with China and Japan, major importers of iron ores from India. Thus, as the 2021 Policy has failed to consider these conundrums, an alternative — such as a subsequent amendment to the 2021 Policy — becomes imperative to meet the surge in exports to ensure that India continues to meet its iron ore exports requirement effectively and efficiently.
2. Ease of Doing Business: The Counterproductive Effect of Customers’ Excessive Liberty and Dispensing of Bare Minimum Governance
The 2021 Policy provides liberty (for ease of doing business) to all its customers to decide their loading and/or unloading points or combinations of these points as they deem fit for moving their traffic which was not provided in the 2007 Policy. This is problematic because it completely dispenses the bare minimum governance requirement on the customers with respect to violations of applicable law. Further, the approval/permission requirement that was set in place under the 2007 Policy with respect to the dispatching of “low-grade fines, or iron ore rejects” has also been dispensed because now, instead, a mere self-declaration must be provided stating that such movement does not violate, in any manner, the law of the land. Additionally, the legal liability and responsibility have been done away for the Railway authorities; in other words, the Railway authorities now cannot be held responsible for any wrongdoing by the customers. Thus, this essentially necessitates the question as to why the policymakers failed to provide for alternative/simple governance mechanisms being put in place to ensure that the customers have ease in doing business and are proportionately and adequately accountable at the same time. The consequential impact on the iron ore industry would be unraveled in the increasingly uncertain future.
3. Penal Provisions in the 2021 Policy: Are They Disproportional and Excessive Against the Customers?
The customers wanting to move their traffic under any of the four Priorities will have to ensure that they have procured, transported, and utilized the materials as per the rules and regulations issued by the Central and State Governments. In case of lapses on the part of the customer, the 2021 Policy provides that the customers will be held liable as per the law of the land wherein the Railway authorities stand indemnified for any such lapses committed by the customers. Further, the zonal railway (PCOM) conveniently reserves the right to initiate suitable penal action, including block listing for at least three months.
It is believed that the 2021 Policy fails to address two central conundrums while considering the penal measures mentioned above:
- It fails to define the term “lapses,” and hence, it is for the Railway authorities to interpret the same on a case-to-case basis. This vagueness only opens paths for unfair and unjust interpretations, leaving the customers at the behest of the authorities.
- No mechanism has been provided as to how the penal action against the customers regarding block listing shall take place; whether an independent governing body would be set up to scrutinize what would be classified as a “lapse” on the part of the customers or any other body as deemed fit by the Railway authorities.
It is also noteworthy to mention that a minimum of three months of block listing may not significantly impact the big customers in the iron ore industry. However, it would have a severe impact on the smaller customers, i.e., the MSMEs, as their propensity to earn profits is adversely impacted, thereby leading to a significant detriment to their overall business, especiallyin light of the big customers dominating the industry in terms of mining rights, resources, and other related factors.
Conclusion: One-Step at a Time, with Care and Caution
Considering the preceding arguments, it is imperative for us to be reminded that iron ore is the second-most important “stream” of traffic for the Railways. Further, iron ore, coupled with steel, comprisednearly 17% of the Railways’ total 1210 million tons “freight loading” in 2019-2020. Additionally, steel production is dependent on the effective and efficient transportation of iron ores and other raw materials.
Therefore, the need to structurally reform the transportation process of such materials is quintessential for the seamless and uninterrupted flow of steel and other metals. Although the 2021 Policy may seem to provide tangible benefits to its stakeholders, it also comes with certain questionable drawbacks, which necessitate its need to be implemented with care and caution by being wary of its consequential impacts. If the same is done, it shows promise for a relatively positive impact on increasing the business in the Railway industry and for the people involved in iron-ore production, including the steel industry,due to a faster supply chain setup. In finality, it may also enable the iron ore industry to better achieve its economic potential by focusing on domestic demand and supply through reprioritization and reallocation of resources and efforts, thereby boosting future chances of increased exports and propensity for India’s economic growth.
About the Authors
Ms. Swetha Sethuraman is an Associate at Shardul Amarchand Mangaldas & Co., Chennai.
Pushpit Singh is a 3rd-year student at Symbiosis Law School, Hyderabad, and is an Associate Editor at IJPIEL.
The views and opinions expressed by the authors are personal.
Managing Editor: Naman Anand
Editors-in-Chief: Akanksha Goel & Aakaansha Arya
Senior Editor: Nutan Keswani
Associate Editor: Pushpit Singh
Junior Editor: Aribba Siddique
Preferred Method of Citation
Swetha Sethuraman and Pushpit Singh, “Iron Ore Policy 2021: Catharsis or Axe in the Foot?” (IJPIEL, 05 October, 2021).