CAG faults NMDC for Rs.746 crore revenue loss during 2007-10

State iron ore miner NMDC bore revenue losses of Rs.745.94 crore during 2007-10 for not revising the domestic prices of the raw material in line with prevailing market rates, India's official auditor said Thursday.

"...due to non-revision of domestic prices by the company (NMDC) in line with movement of market price, the company has suffered a revenue loss of Rs.754.94 crore during 2007-10," the Comptroller and Auditor General (CAG) said in a report tabled in parliament.

The CAG also said by extending unwarranted price reductions, National Mineral
Development Corporation (NMDC) had passed Rs.600.83 crore benefit to its customers during 2010-11.

"... not increasing the prices by full percentage in line with increase in export prices led to a loss of Rs.227.40 crore during the same period," the CAG said.

The national auditor also faulted NMDC's way of price fixation, saying the method of net realisations followed is deficient, which results in charging lower prices to domestic customers who sell their finished products at prices driven by market forces.

"As the lower iron ore prices charged by NMDC do not necessarily result in keeping the steel prices low as these are market driven, it is imperative that NMDC safeguards its financial interests and realises optimum prices for its ore," the CAG said.

NMDC exports iron ore through long-term agreements (LTA) with Japanese Steel Mills (JSM), at prices that are at par with what Australian and Brazilian exporters get from JSM.
LTA prices of exports formed the basis for determining the domestic prices for LTA with domestic customers, the CAG said, adding that 95 per cent of NMDC's sales came from LTA and the rest were spot sales during 2005-12.

"Sales to domestic customers through LTA accounted for 84 per cent of its sales," the CAG said. State-run Rashtriya Ispat Nigam and private sector firms like JSW Steel and Essar Steels are NMDC's major domestic customers.

NMDC sold 27.3 million tonnes iron ore valued at Rs.11,167.56 crore during 2011-12.
Regarding shortfal in iron ore production, the CAG observed that though NMDC achieved a capacity of 32 million tonnes in 2007-08 itself, it has generally been setting its annual production targets below its capacity.

"Its actual production ranged between 23 and 30 million tonnes during 2007-12, which was linked to inadequate evacuation facilities," the government auditor said.