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How Every Goan Can Get Rs 9,000 Each Year

Karan Bhagat 21 Aug 2016
Citizens Rights and Exploitation of Resources: The Goan Case

It doesn’t happen often but doesn’t it feel wonderful when occasionally your bank account gets credited by the government? Some of us will have enjoyed this sensation with our LPG subsidies (now withdrawn for many), or the occasional income tax refund.
 
But what I’m positing is not occasional. It is a steady amount, paid every year, year after year, ad infinitum (well, for as long as you live!).
 
Sounds far fetched? Not really. Here’s how it would work –
 
Let’s start with a few facts. First is the fact that under Indian law, state government’s are the owner’s of mineral resources. However, governments own these in their capacities as Trustees for the people. In other words, the true beneficial owners of the resources are the people of the state.
 
Second, under Article 21 of the constitution future generations must have as much access to resources as our own. In other words, we are merely custodians of inherited resource wealth and cannot deplete the country of its resources leaving none of the value for our children. 
 
Now, as we know, Goa has rich deposits of iron ore. While much of these have already been extracted (the first mining concessions were granted by the Portuguese as early as 1929, though relatively modest amounts were extracted till the last decade), estimates of mineable reserves currently remaining in the ground are in the region of just under 600 million tons. In the years immediately prior to a 2012 Supreme Court judgment, huge amounts were being mined each year, which if continued at the same pace in future could have resulted in no ore being left after 10 years. However, the judgment limited future iron ore mining in Goa to 20 million tons per year. Now using this cap on the amount that could be mined per year in the future, and simply selling the right to mine for just (say) the next 12 years, based on long term average iron ore sale prices and percentages of value historically obtained by efficient governments, the Goa government could reasonably expect to earn approximately Rs 45,000 crores from the sale of future mining rights over this period (these estimates are taken from a letter sent to the Chief Vigilance Officer by the NGO Goa Foundation in June, 2015). If the money thus collected was conservatively invested to earn a return of (say) 3% above the rate of inflation, with just this 3% ‘real’ (i.e. excess) return being distributed to citizens as an annual dividend (and the remainder retained in the fund to effectively ‘inflation proof’ the principal amount for the benefit of future generations), an annual dividend of Rs 9,000 could be paid to each man, woman and child living in Goa today (assuming a population of 1.5 million). Voila, it’s as simple as that!
 
And this will not be the first time that such a thing has been done. The concept of permanent funds for mineral wealth is a well established one. Take the case of the US state of Alaska. Soon after the Trans-Alaskan pipeline system was opened, allowing Alaska’s vast reserves of oil to find their way to market, and on the back of a popular perception that the government had historically not managed the revenue from these reserves well, the state set up a permanent fund in 1976. This fund started distributing an annual dividend to residents in 1982 and has done so in every year since then. The most recent annual payment was USD 2,072 per head. To be eligible for the dividend an individual needs to establish that he or she has physically lived in the state for at least 185 out of 365 days of the calendar year preceding the date of the relevant dividend distribution (which typically happens in October each year).
 
By law, at least 25% of the Alaskan state’s oil revenues must be paid into the fund. The revenues of the fund go towards meeting the expenses of administering it (this is done by a state owned company which is operated at arms-length from the government of the day), retaining a portion within the fund as a hedge against inflation, and paying the annual dividend to residents.
 
Now let’s get back to Goa. During the years of peak iron ore prices (2004-2012) the state secured for its coffers approximately 3% of the (declared) value of iron ore extracted by private parties from within its boundaries. This came from levying royalties on miners, set as a percentage of the value of the ore that they sold. This very low percentage of the total value that was secured by the owners of the resource compares extremely unfavorably with instances where reasonably efficient owners have secured between about 50 and 75% of the value. 
 
Naturally, it would be wrong to assume that the full value of the resource can accrue to the state. After all it costs money to extract ore from the ground and sell it. Those doing so also need to earn a ‘reasonable profit’. So some of the value must accrue to the extracting parties. Taking this into account and assuming a generous profit to those parties, The Goa Foundation has estimated that during this 8 year period over Rs 50,000 crores (about 7.5 billion US Dollars) of value was lost to Goans due to the revenue system used by the state government. This is about twice the revenue that the Goa government earned from all sources during the period. Had this money been secured and invested in a permanent fund with 3% per year paid to residents as a dividend, it would have resulted in each Goan receiving Rs10,000 per year. The Rs 9,000 per year receivable from the sale of future mining rights, as previously mentioned, would of course come on top of this – so the dividend would grow as the pot grew. In short, what has happened in Goa in recent years amounts to a raw deal for the people on a massive scale.
 
But much of this is fairly well known.
 
In September 2012, following the report of a judicial commission (the so called ‘Justice Shah Commission), the Supreme Court banned mining in Goa. The judgment in April 2014 stated that a number of illegalities had occurred including mining after the expiry of leases (all mining leases expired by November 2007, yet mining continued until the Supreme Court order nearly 5 years later) and dumping waste outside mining lease areas, among others. It also specified that for mining to resume in the state fresh leases and environmental clearances would be required, an interim cap of 20 million tons per annum was placed on the amount that could be extracted each year, the government was required set up a permanent fund and to investigate and prosecute those who had broken the law.
 
Less than a year later, in January 2015 the central government issued an ordinance stating that henceforth all mining leases must be auctioned and no leases can be renewed on expiry (if desired, fresh leases could be granted following a fresh auction). However, in the weeks before the ordinance was promulgated, the government of Goa renewed the leases of 88 mines, extending them till 2027 while effectively backdating the renewals to 2007. It thus substantially weakened its position in recovering damages from parties that had been deemed to have mined illegally after 2007 as per the Supreme Court order.

Incidentally 56 out of these 88 leases were approved in the week before the ordinance was promulgated, presumably in the knowledge of the impending legislation. No auction was conducted.

So far so depressing.
 
But we should not be completely despondent. Much has been lost but there is still some hope for the future. If this (or a subsequent) government follows the orders of the Supreme Court it could attempt to recover at least some damages from those who acted illegally (bearing in mind that the Supreme Court pointed out several illegalities). Charges imposed could swell to nearly double the principal amounts if interest were taken into account. It could also cancel existing leases on the basis of current illegalities and auction new leases. This has recently been done in the case of coal blocks. The full proceeds from both sources of revenue could be put into a permanent fund. 
 
A local movement called Goenchi Mati (see www.goenchmati.org) has as its chief aim the persuasion of political parties to do precisely this. It is asking politicians contesting the upcoming state elections to sign a petition saying that they promote this course of action. For the sake of our children it deserves our support.

How Every Goan Can Get Rs 9,000 Each Year

Citizens Rights and Exploitation of Resources: The Goan Case

It doesn’t happen often but doesn’t it feel wonderful when occasionally your bank account gets credited by the government? Some of us will have enjoyed this sensation with our LPG subsidies (now withdrawn for many), or the occasional income tax refund.
 
But what I’m positing is not occasional. It is a steady amount, paid every year, year after year, ad infinitum (well, for as long as you live!).
 
Sounds far fetched? Not really. Here’s how it would work –
 
Let’s start with a few facts. First is the fact that under Indian law, state government’s are the owner’s of mineral resources. However, governments own these in their capacities as Trustees for the people. In other words, the true beneficial owners of the resources are the people of the state.
 
Second, under Article 21 of the constitution future generations must have as much access to resources as our own. In other words, we are merely custodians of inherited resource wealth and cannot deplete the country of its resources leaving none of the value for our children. 
 
Now, as we know, Goa has rich deposits of iron ore. While much of these have already been extracted (the first mining concessions were granted by the Portuguese as early as 1929, though relatively modest amounts were extracted till the last decade), estimates of mineable reserves currently remaining in the ground are in the region of just under 600 million tons. In the years immediately prior to a 2012 Supreme Court judgment, huge amounts were being mined each year, which if continued at the same pace in future could have resulted in no ore being left after 10 years. However, the judgment limited future iron ore mining in Goa to 20 million tons per year. Now using this cap on the amount that could be mined per year in the future, and simply selling the right to mine for just (say) the next 12 years, based on long term average iron ore sale prices and percentages of value historically obtained by efficient governments, the Goa government could reasonably expect to earn approximately Rs 45,000 crores from the sale of future mining rights over this period (these estimates are taken from a letter sent to the Chief Vigilance Officer by the NGO Goa Foundation in June, 2015). If the money thus collected was conservatively invested to earn a return of (say) 3% above the rate of inflation, with just this 3% ‘real’ (i.e. excess) return being distributed to citizens as an annual dividend (and the remainder retained in the fund to effectively ‘inflation proof’ the principal amount for the benefit of future generations), an annual dividend of Rs 9,000 could be paid to each man, woman and child living in Goa today (assuming a population of 1.5 million). Voila, it’s as simple as that!
 
And this will not be the first time that such a thing has been done. The concept of permanent funds for mineral wealth is a well established one. Take the case of the US state of Alaska. Soon after the Trans-Alaskan pipeline system was opened, allowing Alaska’s vast reserves of oil to find their way to market, and on the back of a popular perception that the government had historically not managed the revenue from these reserves well, the state set up a permanent fund in 1976. This fund started distributing an annual dividend to residents in 1982 and has done so in every year since then. The most recent annual payment was USD 2,072 per head. To be eligible for the dividend an individual needs to establish that he or she has physically lived in the state for at least 185 out of 365 days of the calendar year preceding the date of the relevant dividend distribution (which typically happens in October each year).
 
By law, at least 25% of the Alaskan state’s oil revenues must be paid into the fund. The revenues of the fund go towards meeting the expenses of administering it (this is done by a state owned company which is operated at arms-length from the government of the day), retaining a portion within the fund as a hedge against inflation, and paying the annual dividend to residents.
 
Now let’s get back to Goa. During the years of peak iron ore prices (2004-2012) the state secured for its coffers approximately 3% of the (declared) value of iron ore extracted by private parties from within its boundaries. This came from levying royalties on miners, set as a percentage of the value of the ore that they sold. This very low percentage of the total value that was secured by the owners of the resource compares extremely unfavorably with instances where reasonably efficient owners have secured between about 50 and 75% of the value. 
 
Naturally, it would be wrong to assume that the full value of the resource can accrue to the state. After all it costs money to extract ore from the ground and sell it. Those doing so also need to earn a ‘reasonable profit’. So some of the value must accrue to the extracting parties. Taking this into account and assuming a generous profit to those parties, The Goa Foundation has estimated that during this 8 year period over Rs 50,000 crores (about 7.5 billion US Dollars) of value was lost to Goans due to the revenue system used by the state government. This is about twice the revenue that the Goa government earned from all sources during the period. Had this money been secured and invested in a permanent fund with 3% per year paid to residents as a dividend, it would have resulted in each Goan receiving Rs10,000 per year. The Rs 9,000 per year receivable from the sale of future mining rights, as previously mentioned, would of course come on top of this – so the dividend would grow as the pot grew. In short, what has happened in Goa in recent years amounts to a raw deal for the people on a massive scale.
 
But much of this is fairly well known.
 
In September 2012, following the report of a judicial commission (the so called ‘Justice Shah Commission), the Supreme Court banned mining in Goa. The judgment in April 2014 stated that a number of illegalities had occurred including mining after the expiry of leases (all mining leases expired by November 2007, yet mining continued until the Supreme Court order nearly 5 years later) and dumping waste outside mining lease areas, among others. It also specified that for mining to resume in the state fresh leases and environmental clearances would be required, an interim cap of 20 million tons per annum was placed on the amount that could be extracted each year, the government was required set up a permanent fund and to investigate and prosecute those who had broken the law.
 
Less than a year later, in January 2015 the central government issued an ordinance stating that henceforth all mining leases must be auctioned and no leases can be renewed on expiry (if desired, fresh leases could be granted following a fresh auction). However, in the weeks before the ordinance was promulgated, the government of Goa renewed the leases of 88 mines, extending them till 2027 while effectively backdating the renewals to 2007. It thus substantially weakened its position in recovering damages from parties that had been deemed to have mined illegally after 2007 as per the Supreme Court order.

Incidentally 56 out of these 88 leases were approved in the week before the ordinance was promulgated, presumably in the knowledge of the impending legislation. No auction was conducted.

So far so depressing.
 
But we should not be completely despondent. Much has been lost but there is still some hope for the future. If this (or a subsequent) government follows the orders of the Supreme Court it could attempt to recover at least some damages from those who acted illegally (bearing in mind that the Supreme Court pointed out several illegalities). Charges imposed could swell to nearly double the principal amounts if interest were taken into account. It could also cancel existing leases on the basis of current illegalities and auction new leases. This has recently been done in the case of coal blocks. The full proceeds from both sources of revenue could be put into a permanent fund. 
 
A local movement called Goenchi Mati (see www.goenchmati.org) has as its chief aim the persuasion of political parties to do precisely this. It is asking politicians contesting the upcoming state elections to sign a petition saying that they promote this course of action. For the sake of our children it deserves our support.

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