The 'zero risk system' of illegal mining

Known variously as “risk protection”, “zero risk system” and “risk money system”, this was a well-oiled, sophisticated risk protection system that protected the returns for illegal miners, and provided lucrative returns for transporters and politicians. According to the Lokayukta, the system rests on the political clout of the District In-charge Minister G Janardhana Reddy.

Here is how the system works, as explained in the Lokayukta report.

The smooth system

In Lokayukta’s words, miners were offered a risk-free mode of transporting illegally mined ore. Reddy used government officers to provide necessary permits to other mining companies for free and uninterrupted transportation of their material to the destination of their choice, and in return received a share of their produce. “This system has come to be known as Zero Risk System,” the report states.

Modus operandi

A guarantor, known as ‘risker’ in miner terminology, will transport the illegally mined ore (“zero material” in miner terminology) to the destination by charging a commission for taking the risk. The guarantor will deliver the ore usually without any valid permits, or with permits he manages to obtain from source, or by using fake permits.

Protection

The ‘risker’ will guarantee the delivery of the ore to its destination. If the ore is caught on the way, the risker will take the responsibility to get it released by adopting legal or illegal means, and also bear the expenses incurred.

The ‘riskers’

The risk protection was primarily provided by Swastik Nagaraj (K V Nagaraj) and Karapudi Mahesh through their firms Safia Minerals and Sri Manjunatheshwara Minerals respectively. An illegal stock yard run by the two was found adjacent to Jindal Steel Work (JSW) premises.

Beneficiaries

Many high profile firms have availed their services including Jindal Steel Works (JSW) and the Reddy brothers owned Obulapuram Mining Company and Laxminarayan Mining Company. 

Risk money

The typical risk amount that is paid out to the guarantors varies between Rs 75 to Rs 200 per MT. This varies according to distance, vigilance, checking and other factors. For reference, prices of iron ore has varied from Rs 5,000 to Rs 8,000 in the last five years.

Size of business

The risk protection business saw transactions worth Rs 40 crore in five months, which involved 382 traders, firms and companies.

Systematic bribing

Information obtained on one guarantor Karapudi Mahesh through I-T raid showed that a total amount of Rs 2.46 crore was paid as bribe to 617 officials of various rank and cadre across all districts between Bellary and various ports. Favours extended include non-checking of overload, trip sheets, way permits, allowing lifting of waste dumps, extraction of floating ores etc. Records obtained from Associated Mining Company, owned by Janardhana Reddy and his wife, also show part of significant bribes.