Profit-making OMC suffers $7.7 million loss for an incorrect estimate of bauxite floor price

Odisha Mining Corporation (OMC), a gold category Public Sector Undertaking established in India, has reported incurring a loss of INR 61 crore ($7.77 million) due to inaccurate costing of bauxite from the Odisha’s Kodingamali block in Koraput and Rayagada districts. The profit-making OMC’s issue was pinpointed by the Comptroller and Auditor General (CAG) in its compliance audit report for the year ending March 2020, which was tabled in the state Assembly on August 1 2022.

As a result of the two e-auctions held on April 4 and October 3 in 2018 and the third auction held on April 3, 2019, the State PSU has determined the floor price for bauxite at 462, 547.50 and 672.65 per tonne, which will lift the mining block to 50 years rather than 21 years. Following these three e-auctions, prices ended at 465, 553 and 673 per tonne. From April 2018 to July 2019, the company sold 31,86,277 tonnes of bauxite.

It was approved by the Indian Bureau of Mines (IBM) that mining plans would implement for a bauxite lease holding approximately 611 lakh tonnes of reserves for 21 years, with 15 lakh tonnes being mined for the first year and 30 lakh tonnes per annum for the remainder.

In its cost estimates, the PSU included interest of 10% on capital employed. The third tender also had a sustainable development framework (SDF) cost of 10 per cent of royalty. In such a cost-plus framework, the estimate for the cost of production must have incorporated all the elements of charge - the cost of back-filling, interest on capital employed, and SDF, among others, for raising and sale of bauxite to the aluminium sector.