DISCUSSION
Mining in Goa:
Beyond Forest Issues
Rahul Basu
This comment on “Missing
the Woods for the Ore: Goa’s
Development Myopia” by Pranab
Mukhopadhyay and Gopal K
Kadekodi further criticises “A
Study on Goan Iron Ore Mining
Industry”, the 2010 report of
the National Council of Applied
Economic Research.
P
ranab Mukhopadhyay and Gopal K
Kadekodi (“Missing the Woods for
the Ore: Goa’s Development Myopia”,
EPW, 12 November 2011) (MG hereafter)
have critiqued a report on mining in Goa
by the National Council of Applied Economic Research (NCAER) (2010) for using
incorrect methodology in comparing forest’s values and mining deposits. We feel
that MG’s critique omits some other deficiencies in the report of NCAER that have
important implications.
Ethical Concerns
One important gap in MG is the discussion of
research ethics. NCAER should also have
freely disseminated its report through its
website or priced it reasonably for interested readers. Instead, the 62-page report is
priced at Rs 1,000, ensuring that an average
concerned citizen does not buy it. Further,
as a leading Indian economic think tank,
NCAER should have followed international
best practice (McCullough and McKitrick
2009) and placed both the source data
and their calculations in the public domain
for independent verification and analysis.
This comment, therefore, raises larger
questions on the need for a code of ethics
by professional organisations.1
Methodological Issues
The author would like to acknowledge helpful
inputs from Pranab Mukhopadhyay and
Sudipta Basu.
Rahul Basu (rahulbasu1@gmail.com) is the
founder and CEO of Ajadé.
Economic & Political Weekly
EPW
january 21, 2012
The three principal conclusions of NCAER
(2010) are:
(1) Mining contributes around 5% of Goa’s
gross state domestic product (GSDP) when
measured at constant 1999-2000 prices. The
price of world iron ore increased sharply
in January 2008. The NCAER report (2010)
re-estimates the share of mining in Goa’s
GSDP and anticipates this to be the longterm contribution assuming that the higher
iron prices are permanent. At current
(2007-08) prices, this would imply a direct
as well as indirect contribution by mining
of 16.94% of GSDP (ibid: 26).
vol xlviI no 3
(2) The NCAER report claims that in 2004-05,
mining employed directly and indirectly
about 75,000 workers of the state’s workforce of 5,82,274. This is close to estimated
tourism employment of 84,150 (ibid: 18).
(3) The opportunity cost of giving up the
iron ore industry would be greater than
the cost of environmental losses (ibid: 43).
Mining Share of GSDP: The anticipation
of NCAER’s report that the iron ore price
rise is permanent is rather optimistic as
commodity prices are cyclical. The iron ore
market is highly concentrated with a few
large buyers and sellers. The big buyers are
steel manufacturers in China, Japan and
Korea. The big iron ore suppliers are Rio
Tinto, BHP Billiton and Vale. For nearly 40
years, the buyers and sellers had negotiated
to set long-term iron ore prices. However,
as commodity demand surged in 2007, this
arrangement broke down and prices rose
sharply in January 2008 (Handique 2007).
Sesa Goa, the largest Goan iron ore exporter contributed 35% of Goa’s iron ore
exports in 2009-10 (GMOEA 2010: 5).
The annual report of Sesa Goa states
that “…supply-side constraints of the past
are expected to change by 2014. …What
this means is that….The world may see an
over-supply condition by 2014 at the macro
level…”.2 In other words, the leading industry player expects iron ore will be in
oversupply in a few years ­resulting in a
steep drop in prices. Further, Goan export
price per tonne dropped by 33% between
2007-08 and 2008-09 from Rs 3,017 per
tonne to Rs 2,012 per tonne (derived from
port-wise iron ore export data, NCAER
2010: 18). Clearly, there is an expectation
in the iron ore industry that the demandsupply imbalance will soon be bridged.
Thus, NCAER’s price expectations are
poorly informed and iron ore should be
expected to maintain its contribution at
around 5% of Goa’s GSDP as anticipated by
the constant price series of Goa government’s Directorate of Planning, Statistics
and Evaluation (DPSE).
NCAER’s calculations to create this inputoutput table have not been placed in the
public domain. There seem to be several
inconsistencies. For example, see Table A2
(NCAER: 56).
77
DISCUSSION
(1) On the cost side, transportation is taken to
be 9%, whereas the financial statements of
Sesa Goa show that 49% of the expense (for
the company as a whole) is for transportation.3 (2) Rows indicate the estimated output allocated according to uses, including
final demand. NCAER estimates that 45%
of the mining output is consumed in Goa
(Table A2). Unlikely users include construction (13%) and electricity, gas and
water supply (13%). In reality, almost all
Goan iron ore is exported – GMOEA reports
it as over 100% (GMOEA 2010: 1).
NCAER then calculates the following
­results for the multipliers:
people usually working in Goan mining
and quarrying is 3,412, plus hired workers
numbering 3,161, totalling to 6,573. For
reasons unstated, NCAER ignores this
­official data source.
NCAER also uses estimates for direct
and indirect employment from mining
from its funding agency GMOEA. There are
few explanations or sources provided for
GMOEA’s estimates of 75,000. Our own calculations on Goa’s mining employment
suggest that the total employment (direct
and indirect) would not exceed 21,873.
Direct Employment: In 2009-10, Sesa Goa
Table: Multipliers Estimated by NCAER
had 2,691 employees based in
Key Sectors Only
Value
Output
Employment Employment Income
Goa.6 We add another 1,200
Addition Multiplier
Multiplier
(Person Years Multiplier
(Person Years of Calculated)
employees of V S Dempo,
Per Lakh of Output
which was acquired by Sesa
at 2007-08 Prices)
Goa during the year7 totalMining and quarrying 0.7787
1.45
0.41
71,600
0.98
Agriculture
0.7262
1.52
3.41
2,73,970
1.02
ling 3,891 employees. This inManufacturing
0.2478
2.35
0.84
4,71,809
0.82
cludes employees in a variety
Construction
0.3422
2.31
0.83
1,10,202
0.93
of non-mining activities such
Trade, hotels
as pig iron, metallurgical
and restaurants
0.7543
1.44
0.76
1,36,183
0.99
Source: NCAER 2010 (pp 10, 26 and 57).
coke and ship-building/ship
The income multiplier shows us the total yards, as well as employees for operating
direct and indirect value addition due to vehicles, river fleet, aircraft and ships.
increase in one unit of output. Alarmingly, Sesa’s iron ore segment’s operational exif we were to use the NCAER (2010) methodo­ pense was 80.5% of the total operational
logy, manufacturing would be responsible expenses and 72.7% of the total iron ore
for 108% of GSDP.4
was in Goa. If we were to proportionately
Even if these multipliers accurately rep- estimate employment to only Goan iron
resent the Goan economy, NCAER’s calcu- ore (73%), we get a figure of 2,277
lations suggest that (1) the mining em- (=3,891*.805*733).
ployment multiplier is the lowest among
The Goan iron ore industry exported 2.85
all other leading sectors. (2) The income times that of Sesa and Dempo in 2009-10
multiplier is lower than agriculture and
trade, hotels and restaurants (tourism).
Employment: The NCAER report would
like the reader to believe that mining is a
large contributor to employment in Goa.
Initially, NCAER arrives at direct employment using data from the National Sample
Survey 61st Round 2004-05. In the process,
NCAER oddly assumes “the population in
rural ­areas to be insignificant in Goa”
(NCAER 2010: 17). Interestingly, NSSO itself
estimates that 61.5% of Goans reside in
­rural areas (GoI 2005: A-5 and A-7). However, NCAER concludes that the labour
force directly employed in mining and
quarrying is 19,000, out of a total Goan
labour force of 5,82,000.
Contrarily, the Fifth Economic Census
in 20055 reports that the total number of
78
(GMOEA 2010: 5). Goan iron ore exports in
2008-09 were 83.3% of that in 2009-10
(ibid: 1). By extrapolating the Sesa Goa
employment figure we get total direct employment of 5,416 (= 2,277 × 2.85 × 0.833).
Indirect Employees: GMOEA estimates
total indirect employment to be at 1:1 ratio
with direct employment. In the absence of
any other indicators, we use GMOEA’s ratio
to estimate that indirect employment in
mining is 5,416.
Truck Transportation: We assume that a
truck traverses 5,000 km a month, for seven
months of the year (non-monsoon), and
carries 10 tonnes.8 Goa exported 38.075 mn
tonnes in 2008-09 (GMOEA 2010: 1) and
the average road linkage from the mine to
the river loading point is 30 km,9 arriving
at a total of 228 million truck kilometres.
The overburden is 2.3 times more than the
production.10 Assuming the average truck
run is 2 km for the overburden, we get 18
mn truck km for overburden. Total truck
transportation is 246 mn truck km. Based
on 35,000 km per annum per truck (a very
conser­vative utilisation level for a commercial vehicle), we get 7,028 trucks.
In 2005, there were 55,119 commercial
vehicles in Goa11 and an estimated 63,000
people employed in transportation.12 The
latter figure includes buses with conductors.
We, therefore, estimate one direct employee
per truck and the total employed on trucks
as 7,028. Lacking another methodology,
PERSPECTIVES ON CASH TRANSFERS
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A Case for Reframing the Cash Transfer Debate in India
– Sudha Narayanan
Mexico’s Targeted and Conditional Transfers: Between Oportunidades and Rights
– Pablo Yanes
Brazil’s Bolsa Família: A Review
– Fabio Veras Soares
Conditional Cash Transfers as a Tool of Social Policy
– Francesca Bastagli
Cash Transfers as the Silver Bullet for Poverty Reduction: A Sceptical Note
– Jayati Ghosh
PDS Forever?
– Ashok Kotwal, Milind Murugkar,
Bharat Ramaswami
Impact of Biometric Identification-Based Transfers
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The Shift to Cash Transfers: Running Better But on the Wrong Road?
– Devesh Kapur
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vol xlviI no 3
EPW
Economic & Political Weekly
DISCUSSION
we use GMOEA’s scale factor of 25% of
truck transportation to estimate Goan
­employment in garages, etc, as 1,757.
Barge Transportation: The number of
barges in Goa in 2009 was 300 (GMOEA
2010: 13). Only 83.5% of the iron ore
exported from Goa was of Goan origin
(GMOEA 2010: 1). Therefore, 251 barges were
used for transporting Goan iron ore.
Articulated tugs and barges are reported
to have seven to nine crew members.13 The
last two capsized Goan iron-ore barges
reported seven employees each.14 Direct
employment on 251 barges would, therefore, be 1,754. Supervision for 251 barges
could be considered as two per barge or
502 supervisors.
Summing-up the estimates above, we
arrive at a bottom-up employment figure
of only 21,873 (5,416 + 5,416 + 7,028 +
1,757 + 1,754 + 502). As mining stops during the monsoon, all of the transportation
employment and most of the direct mining employment are seasonal and manned
by migrant workers. Assuming that only
50% of the direct mining employment is
in categories that persist during the monsoons, the real core employment of Goa is
unlikely to exceed 5,500 (rounding up
from 5,416 above).
Social Benefits: Since NCAER’s third conclusion has been critiqued intensively by
MG, we focus on estimating only the social
cost due to depletion of natural reserves.
We will use the net price methodology
used by the World Bank (WB 1997: 8). This
is easy to measure but can give an upward
bias in a high-price environment. In essence,
it calculates the price of the iron ore minus
the cost of extraction, multiplied by the
amount extracted. The cost of extraction
includes the cost of capital. Society captures some of this economic rent through
royalties. Most of it is captured in the profit
before tax of the mining companies.
In 2008-09, Sesa Goa reported profit
before interest, tax, dividends and other
non-recurring or non-allocable expenses
for the iron ore segment amounting to
Rs 2,206.07 crore.15 Segment assets are
Rs 902.69 crore and depreciation is Rs 34.95
crore. Using a 12% cost of capital rate, we
calculate depletion cost at Rs 2,062.80
crore.16 Sesa’s corporate tax rate was
Economic & Political Weekly
EPW
january 21, 2012
26.3922%. Adjusting for this, we get a depletion cost of Rs 1,518.38 crore. Sesa’s
production in 2008-09 was 41.9958% of
the total Goan iron ore exports (GMOEA
2010: 1 and 21). We, therefore, calculate a
total depletion cost of Rs 3,615.55 crore
(=1,518.38 ÷ 41.9958%), which is much in
excess of the annual social benefits of
Rs 2,309.5 crore (NCAER 2010: 43).
10
11
12
13
14
Implications for State Policy
The inescapable conclusion is that mining
should be stopped, or at least drastically
curtailed, in Goa. The state policy should
take into account a likely steep decline in
iron ore prices in the near future. Goa
needs better studies in environmental
management that not only use state-ofthe-art methods, but also maintain the
highest standards in research ethics.
NCAER (2010) report is unacceptable on
both these dimensions.
Closure of mining, by our calculations,
would affect a resident population of
about 5,500 (about 0.9% of Goa’s labour
force). Finding alternative employment
may be much easier than what NCAER and
GMOEA would have us believe. A state
which is growing at over 10% per annum
in real terms should be able to absorb the
displaced workers in other sectors.
Notes
1 Tilman Börgers in the website “Conflict of Interest
in Economics”, viewed on 8 August 2011, https://
sites.google.com/site/cointrest/home
2 Annual Report 2009-10, p 8, Sesa Goa, Panaji,
viewed on 26 June 2011, http://www.sesagoa.
com/attachments/article/115/Sesa%20Goa%20
Ltd%20Full%20Version%20ARFY2010.pdf
3 See Note 2, p 107.
4 Mining contributes 10.14% of SGDP at current
prices. NCAER calculates the direct and indirect
contribution of mining by the formula 0.98/0.78*
10.14=12.74% (NCAER 2010:26). Using the same
methodology, manufacturing contributes 32.63%
of SGDP. Using the same methodology, we get
0.82/0.2478*32.63=107.97.
5 See DPSE (2005b).
6 P 29, Sustainability Report 2009-10, Sesa Goa,
Panaji, viewed on 26 June 2011 (http://www.sesagoa.com/attachments/article/114/Sesa%20final
%20pdf%20for%20web%20upload%20.pdf).
7 Annual Report 2009-10, Sesa Goa, Panaji, viewed
on 26 June 2011, p 28 (http://www.sesagoa.com/
attachments/article/115/Sesa%20Goa%20Ltd%20
Full%20Version%20ARFY2010.pdf
8���������������������������������������������
Annexure C, “Environmental and Social Performance Indicators and Sustainability Markers in
Minerals Development: Reporting Progress towards
Improved Ecosystem Health and Human Wellbeing”, Phase III, TERI Project Report No 2002WR41,
TERI – Western Regional Centre, Goa, viewed on
26 June 2011, http://idl-bnc.idrc.ca/dspace/bitstream/10625/33366/1/125313.pdf
9 “Mineral Resources of Goa – IRON”, Directorate
vol xlviI no 3
15
16
of Mines and Geology, Government of Goa, Panaji,
viewed on 26 June 2011 (http://www.goadmg.
gov.in/ironinfo.htm).
“Mining Areas”, Directorate of Mines and Geology,
Government of Goa, Panaji, viewed on 26 June 2011.
(http://www.goadmg.gov.in/miningarea.htm).
See DPSE (2005a).
See DPSE (2005b).
“Tugboats”, Wikipedia: The Free Encyclopedia,
viewed on 11 July 2011, (http://en.wikipedia.org/
wiki/Tugboat).
“Barge Capsizes Near MPT Crew Rescued”,
O Heraldo (19 March 2011), “Loaded Barge Capsizes
at MPT”, The Times of India, 20 March 2009,
viewed on 27 June 2011, http://articles.timesofindia.indiatimes.com/2009-03-20/goa/28017448_1_
barge-owner-bad-weather-mpt.
P 121, Annual Report 2009-10, Sesa Goa, Panaji,
viewed on 26 June 2011 (http://www.sesagoa.com/
attachments/article/115/Sesa%20Goa%20Ltd%20
Full%20Version%20ARFY2010.pdf).
Cost of capital = Rs 108.32 crore (Rs 902.69 * 12%).
Total return on capital + depreciation is Rs 143.27
crore (108.32+34.95). Depletion cost is Rs 2,206.07
crore – Rs 143.27 crore = Rs 2,062.80 crore.
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79