Resources Research

Making local sense of food, urban growth, population and energy

Goa’s mineral resource curse – the socio-ecological cost of private super-profits

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In late August we had a discussion to talk about the ways in which the ‘suppressed entitlement’ of Goa’s population, in relation to mining profits, could be freed. This would have the effect of galvanising a sense of right and ownership using the admittedly troublesome monetary incentive route (we will find a way to deal with this).

The concentration of wealth is astonishing, even in a region that is part of a country whose state Gini coefficients for income are well over 0.45 (over 0.30 is considered to be potentially socially destabilising). Goa’s top six iron ore mining families together with India’s largest private sector iron ore exporter have amassed immense wealth. Based on the derived industry profit for 2009-10, the share per resident family is Rs 3.19 lakh (not including profits from illegal ore sale, not subtracting for the ‘producer’s share of risk and managerial input’).

Based on time-series profits for the years 2000-01 to 2009-10 and average per ton prices we can ‘entitle’ the 360,000 resident families to their ‘withheld shares’ as follows: Rs 2.80 lakh in 2008-09, and working backwards Rs 2.50 lakh, Rs 2.15 lakh, Rs 1.80 lakh, Rs 1.45 lakh, Rs 1.10 lakh, Rs 76,000, Rs 40,000 and Rs 28,000. This totals close to Rs 16.5 lakh due per family for a decade of mineral exploitation. That’s one aspect, to place in perspective the stratospheric super-profits of the main mining families (companies). The other is to work towards a ‘true cost’ accounting of the extraction.

The startling per family ‘entitlement’ also raises the question of how they have been used by the state of Goa. The indications from the contribution of mining and quarrying (the basic accounting head) in the Goa state accounts is that this has contributed between 6% and 4% of state domestic product. We may raise this contribution by 2% to include mineral extraction activities not covered directly by this head. Even so, where is the gross capital formation rate at the state level to show how this wealth has been used? Where is the rise in the net savings rate to show how this wealth has been retained? These are serious questions for the state government to answer.

A ‘true cost’ accounting of the extraction will help us achieve two things:

1. It will help fix the liability of the state administration towards the costs of ecosystem loss and degradation caused by mineral extraction.

2. It will similarly ‘spread the liability’ on a per family basis so that an economic disincentive is created at the household level for such an activity (mining) if households shared both profit and liability.

The destruction to agriculture (from not only mining but urbanisation, infrastructure creation and land speculation) has been great. The falling crop yields are one signal. Biomass generation and use is another signal. In 1998-99 Goa’s crop biomass per hectare was 4.34 tons, the seventh highest among India states (India median value 3.26). In 1998-99 Goa’s biomass surplus to biomass generation ratio was 0.24, just above the India median 0f 0.22, which indicates the rate of use of crop biomass. By 2004 the crop biomass per hectare under agriculture had dropped to 4 tons. We don’t know what the drop has been since then – NRSA data for 2009 will tell us.

The falling agri biomass, surface under crop and declining yields lead directly to greater food insecurity which impacts each household every day in the form of rising prices of food staples. The rise in the indexed cost of cereals and pulses in Goa from early 2008 to mid-2010 has been respectively around 70% and around 90%. Real incomes of the lower four deciles (tenths) of the state population have not risen anywhere as much. Higher transport, fuel and social services costs have actually depressed real incomes.

It is with these factors that the ‘entitlements’ and ‘liabilities’ arguments gathers strength.

It has been pointed out that with every ton of ore, two tons of overburden/rejection is removed from the earth and dumped on the surface creating man made mountains. In 2009-10 the rejections pile is estimated to be 130 million tons. However I do recall the Indian Bureau of Mines saying about 15 years ago that the overburden:ore ratio for iron ore in Goa is around 3:1. It is likely that the ratio has changed, but if so that will be for later extractions – we are still living with the effects of high overburden ratios from extractions prior to 2000. It has been pointed out that the excavation in Goa, which is along the edge of the Western Ghats was of the tune of 200 million tons in 2009-10. What is the downstream impact of this immense volume?

The AEQM study of Teri is well over ten years old and was an early indicator but needs a complete overhaul. The India State of Forest Report 2009 states that Goa has 511 km sq of very dense forest and 624 km sq of moderately dense forest. This is 51,100 and 62,400 hectares. Using the methodologies of the economics of ecosystems and biodiversity for Asian forests and providing weightages for moderately dense forest ecological activity we can estimate that a hectare of Goa’s dense forest provides services worth Rs 78,000 (for moderately dense Rs 39,000). This gives us a forest ecosystem benefit of Rs 641 crore per year for the forest’s ‘service’ of contributing to climate control, water harvesting, providing biological resources for food, providing a stream buffer.

According to ENVIS Goa’s mangroves occupy around 2,000 hectares. Using the methodologies of the economics of ecosystems and biodiversity for mangroves we can estimate that a hectare of unfouled mangrove provides its well-known services which are economically worth Rs 1.36 lakh per ha/year which is Rs 27.3 crore per year provided they are untouched. Similarly, Goa’s wetlands decontaminate water and recycle nutrients. But they also store CO2 which judging from the annual average rates in the major carbon exchanges is worth Rs 45,000 per ton of CO2. We do not know their CO2 storage capacity but we do know that the slurries from settling ponds at iron ore beneficiation plants makes its way into water courses, and that every monsoon tens of thousands of tons of overburden is washed into these swamps and wetlands thereby reducing significantly their ability to store CO2 for which we now have a market rate.

The ‘worth’ of these various ‘services’ may be unimpressive compared with the family ‘entitlements’ I mentioned earlier, but now we come to the shared liability of these services not being there. Typically, the cost of a technological solution to mitigate such ecosystem problems – which dense forests, mangroves and wetlands do for us ‘free’ – can be 20 times and more than the ‘worth’ of the services provided. This is the direct cost of equipment and maintenance and does not take into account concepts like internal rate of return etc which add to such mitigation over time (ecosystem services need no ‘upgradation’).

If Goa’s 360,000 (2010 estimate) resident families are asked to share in the costs of building a plant to do what 2,000 ha of mangroves do, the capital outlay alone will be in the region of Rs 546 crore or Rs 15,000 per family. The ‘carbon capture and storage’ function of the wetlands in Goa work at the estimated rate of 7.5-19 tons of CO2 per acre per year, which is currently done as a ‘free service’. This same function will cost using currently available technology for CCS Rs 1,125-2,700 / ton of CO2 stored. With these technology costs, what will be the cost fo Goa’s families of compensating for the CO2-generating activity (not the ecological destruction and degradation) at only one of the iron ore mines?

How are the populations of the 11 talukas (populations in the note below) to benefit from their share of ‘entitlements’ and ‘liabilities’ of the export profits and environmental burden of iron ore mining? To what extent must the state administration bear the liability and underwrite the costs of mitigation for all of Goa’s affected (directly and indirectly) families? How can participatory shares and fund instruments be created that embody these concepts, who will regulate them, how will they be counter-guaranteed? These are the community economics questions that will face us when we make such calculations.

I have provided these concepts as illustrations only, and where monetary estimates are concerned have not erred on the side of caution (the miners don’t either). The costing methods for ecosystems services are several and each may yield different results. What’s important to us is that they be explored and perhaps, at some point, be a part of local self-government.

Data note: Goa Taluka populations in 2010
Tiswadi    173951
Bardez    270267
Pednem    77328
Bicholim    96923
Sattari    68556
Ponda    172330
Sanguem    68823
Canacona    47292
Quepem    84152
Salcete    308466
Mormugao    172126
Goa    1533734

My thanks to Rajendra Kakodkar of Goa for a first-rate rapid overview of the mining industry and financials. The August meeting was between Claude Alvares, Rajendra Kakodkar, Anthony Simoes and Rahul Goswami.

Written by makanaka

September 28, 2010 at 17:35

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