Mining in Goa (UK-listed Companies)

Tuesday 24th February 2015 Westminster Hall

16:30

[John McDonnell (Hayes and Harlington) (Lab)]

This debate is about the effects in Goa of mining by UK-listed companies, and I called for it because I have a sizeable number of constituents of Goan origin, one of them being my wife. Goans take an absolute pride in the beauty of their state in India, from its architecture—buildings, homes, towns, churches and temples—to the long, unspoilt beaches along its coast and the breathtaking splendour of the mountains of the Western Ghats. That deep feeling for the environmental beauty of their home state has mobilised Goans both at home and abroad to expose and tackle head-on the devastating threat from mining that over recent decades has disfigured its hills, polluted its rivers, undermined its agriculture and put at risk its tourist trade.

I wanted to bring this issue to the attention of the House because a London-listed mining company, Vedanta, and its subsidiary, Sesa Goa, have been at the forefront of the mining practices that have caused such environmental, social and economic devastation. I also wanted to raise the issue because the next few months are a critical time for determining the future of the mining industry in Goa: will we see a return to rapacious profiteering and the exploitation of the Goan environment, or will Goa strike out on a new path, with not only a respect for the environment but the establishment of institutional arrangements that ensure that the past and future earnings from mining are invested in the interests of the Goan people? By offering both moral and practical support, the UK could assist the Goan campaigners who are working so hard and courageously to ensure a sustainable future for Goa’s economy and environment. We can learn much from their recent campaigning to protect their environment.

Goa combines a richness in mineral resources with a rich and diverse environment. The Goa Foundation was established by members of the Goan community in 1986 to protect and promote a sustainable environment for the state. Since the early 1990s, the foundation has worked to achieve a balance between mining and the protection of the environment. In a recent report, the foundation described how in the decades prior to 2012 the environment of Goa became the victim of

“unbridled mining by greedy mining companies and an administration that steadfastly looked the other way.”

The report goes on to explain what happened in the decade up to 2012:

“As prices skyrocketed due to robust demand from China, miners flouted rules to extract as much iron ore as possible while government officials looked on and even joined in the plunder…As a result of reckless mining, our natural environment suffered irreparable damage due to the mining operations, adversely affecting the surrounding ecology and assaulting public health…Since most mining leases are located in forest areas, we lost many hectares of prime forest which can never be replaced…Our streams dried up and our rivers ran red with the mud from the mining dumps…We denuded entire hills and replaced these with new mountains made up of nothing but mining wastes.”

Campaigners also published a short report in July 2011 about what happened at the village of Mulgao that year as a result of unrestrained mining operations at one of the largest mining sites. Visible as one flies into Goa, it is an open-cast iron ore operation that is 14 km in length and carves through tropical forest, cutting across fertile farmland and polluting vital water sources. In July 2011, a large section of the mine’s outer wall collapsed during heavy rain. Thousands of tonnes of silt and mud cascaded into adjacent settlements, swamping paddy fields, polluting lakes, destroying trees and risking lives. The company whose woeful negligence led to the disaster is Sesa Goa, which is owned and managed by the London-registered Vedanta. It was not the first time that the company was held responsible for such a calamity: a similar collapse occurred in June 2009 at two other Vedanta pits in the same area. Vedanta was ordered to close them down but neglected to do so: for two years running, it flagrantly ignored Goa’s air and water pollution regulations.

Thanks to determined and courageous campaigning by the Goa Foundation, in 2012 the Indian Government established under Justice Shah a commission to investigate the mining industry in Goa. The Shah commission exposed systematic illegality, with mining taking place without the necessary licences and outside the leased areas. The commission said:

“The regulatory mechanism has been totally collapsed and irregularities due to maladministration have risen to its peak. In the process, the sole loser is environment, eco-system of the Western Ghats, general public and treasury of Goa State.”

The Indian Public Accounts Committee reported:

“There is a complete breakdown of all machineries provided by the Statute which are required to ensure that mining is undertaken and carried out in a legally permissible manner. The term ‘irregular mining’ is nothing but illegal mining.”

The three reports of the Shah commission and the Supreme Court-appointed Central Empowered Committee exposed the illegal and corrupt practices of the mining companies and their political allies, including the use of force and forgeries. I visited one of the lawyers representing local village communities in their attempts to protect the local environment and their farms from the mining industry. He explained the standard practices of intimidation that the mine owners use against anyone who stood up to them. First, they try to bribe people to stay quiet. If that fails, they send in the goondas—thugs—to threaten people. When that fails, they lodge spurious claims against people with the local police, including, in the case of the lawyer I spoke to, a claim of attempted murder. I pay tribute to the courage and determination of the lawyers, campaigners and honest politicians who have stood up to such intimidation.

The Shah commission estimated that the continuation of mining on such a scale in Goa would ensure the

“complete removal of all mineral wealth in nine years”.

After the commission’s report, mining operations in Goa were suspended in 2012, and the Supreme Court ordered a ban on mining operations in the state in October 2012. Subsequently, in a case brought by the Goa Foundation, the Supreme Court ruled that the mining operations—including the extraction, sale and export of ore from all Goa mining leases—was illegal from November 2007, when the leases came to an end and were not renewed. It held that all mining dumps and dumping outside mines was illegal and that the operation of leases by persons and companies that were not the leaseholders was also illegal. It asked an expert committee to return with a cap on ore production within 12 months, with an interim cap set at 20 million tonnes a year, and gave the environmental Ministry six months to issue a formal notification declaring a buffer zone of 1 km around various sanctuaries and protected areas in Goa.

In the light of the judgment, the Goa Foundation, working with the Natural Resource Governance Institute in Oxford and the Cambridge Judge business school’s Centre for Endowment Asset Management, has explored in expert detail how Goans can halt the loss to the Goan community of the massive wealth that has been generated by mining. The foundation proposed that from now on, funds raised from mining, including the mining of the dumps, should be placed in a permanent fund to be managed and invested independently of the Government. The income from the fund would be used for the welfare of Goa’s citizens, with clearly defined entitlements relating to educational opportunities, health facilities, housing and the rehabilitation of the environment damaged by the mining operations. As a model for the permanent fund, the foundation looked to the Norwegian pension fund, which was created from the sale of oil resources and has amassed $870 billion for a population of 5 million. I commend the Goa Foundation for its creativity and foresight, and I hope that our Government look at some of the developments in the shale gas industry in the same way.

The Supreme Court decided that a Goan iron ore permanent fund should be established, with 10% of the proceeds of all mineral ore sales to be allocated to it. The Goan state government has notified a permanent fund scheme, but the scheme notified is impermanent, which will almost certainly be open to challenge by the Goa Foundation. In addition, the capture rate—the intrinsic value of the mining assets allocated to the fund —was set at 10%, which is viewed by many as unrealistically low. Indeed, under India’s Mines and Minerals (Regulation and Development) Act 1957, the Goan government has a duty to recover all revenues and profits from mining operations conducted without a valid lease.

The Goa Foundation has assessed a minimum amount recoverable from the illegal iron ore mining between November 2007 and September 2012. It looked in particular at the exports of Vedanta’s subsidiary Sesa Sterlite, or Sesa Goa, during that period. Sesa Goa was by far the largest producer and exporter of iron ore in Goa, controlling about 30% of the volume. When the foundation looked at those four years and estimated a price of $60 per tonne, it put the amount payable to the people of Goa for the illegal export of ore by the company at $3.687 billion. Another estimate put the figure even higher. A contribution to a permanent fund of that magnitude would finance significant social investment in the health, education, employment and quality of life of all Goans for the long-term future.

Under pressure from the mining companies, however, the Goan government has decided to renew almost all the mining leases, instead of recovering the significant amounts owed to the Goan community or even auctioning off the leases. Other states, including neighbouring Karnataka, have proposed the auction of the mine leases on a revenue-share basis, with a minimum bid of 35%. That is considerably higher than the 10% contribution to the permanent fund proposed for Goa.

I attended Vedanta’s most recent annual general meeting. I expected to see an impairment written into its accounts to provide for its liability to pay back the $3.687 billion that it had earned from illegal exploitation of the iron ore deposits between 2007 and 2012. Such a figure had not been set aside in the accounts. The annual report made no reference to the illegal mining that the Supreme Court had found the company to be carrying out from 2007. At the time of the publication of the Vedanta annual report, the High Court had not determined the renewal of the leases, nor had the Goan state government. I am suspicious of Vedanta’s confidence that it could exercise sufficient influence over the Government to avoid paying for its illegal mining activities and that it would soon be up and running again in its mines.

I hope that the determined and courageous campaigning by the Goa Foundation will win out, and that the permanent fund will be established with sufficient income from the past illegally mined assets of the Goan people and from future, environmentally sustainable operations. I am confident that the heroes and heroines of the foundation will be successful. Their determination is to be admired. I pay tribute to a number of them: the foundation’s director, Dr Claude Alvares; Rahul Basu; Dean D’Cruz; Carmen Miranda; and Samarendra Das. They all, at some risk to themselves, have stood up to be counted on behalf of the Goan people.

I fear for the future, however, while rogue companies such as Vedanta are allowed to destroy environments, undermine communities and abuse human rights with virtual impunity. Vedanta is a UK-listed company that enjoys the prestige and financial benefits of being listed in London. The UK therefore has a responsibility to monitor and police the company’s operation, in particular its adherence to international conventions and treaties on civil liberties and environmental impacts.

The company has gained a reputation for abuse of human rights, tax avoidance and environmental degradation in its operations in Zambia and India. In 2007, Norway’s Council on Ethics concluded:

“Continuing to invest in…Vedanta would present an unacceptable risk of contributing to grossly unethical activities.”

In response, the Norwegian sovereign pension fund sold all its Vedanta shares. Only last week, Vedanta was involved in yet another scandal when civil servants were arrested for leaking mining industry information to the company. In 2010, the Church of England divested itself of its shares in Vedanta, because

“after six months of engagement, we are not satisfied that Vedanta has shown, or is likely in future to show, the level of respect for human rights and local communities that we expect of companies in whom the Church investing bodies hold shares.”

In the debate on the legislation to erect the new architecture for the supervision of our banking and financial system, I tabled various amendments intended to award the new Financial Conduct Authority powers to supervise the adherence of London-listed companies to international treaties and conventions on human rights, labour law and environmental sustainability. More recently, the Select Committee on Business, Innovation and Skills, in its report on the extractive industries, warned of the negative impacts on local and indigenous communities of the mining industry. The Committee welcomed the Government’s work to increase openness and transparency and the signing up to European Union directives. The report went on to support my view:

“We believe that the Government should consider expanding the FCA’s remit to include not only oversight of financial transparency, but also the social, environmental and corporate governance reporting for companies applying to list on the London Stock Exchange. If it is not felt appropriate for the FCA, the Government should determine which body should have the remit to do so.”

Successive Governments have watched the excesses of the deregulated finance sector and the banks and have done nothing. As a result, we have endured an economic crisis that has produced immense hardship here and across the globe. If we sit back again and do nothing to control and curtail the damaging, divisive and destructive activities of rogue companies such as Vedanta, a UK-listed company, the long-term consequences for our country, its reputation and its standing in the world, and for our environment, could be equally devastating. I urge action on the Government, not only to support the Goan community, of course, but—as importantly—to control the excesses of the likes of Vedanta as they seek to trample over the lives of people and communities throughout the world.

Already there are concerns about the environmental impact if the mines start to operate again in an uncontrolled fashion that will undermine the Goan environment and economy, and the quality of life of the Goan community. I urge the Government to do everything possible to support those who have bravely campaigned to protect the environment of Goa and to secure the rewards of the mineral resources of Goa for the people of Goa.

16:47

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson)]

It is a great pleasure to serve under your chairmanship, Dr McCrea.

I congratulate the hon. Member for Hayes and Harlington (John McDonnell) on securing the debate and on taking us through a fascinating, if deeply worrying history of mining in Goa. He clearly has great constituency interest in the matter, as well as a personal one. He outlined details of the damage that can be caused to the natural environment in terms of deforestation, pollution and public health. The impact of corruption on the population is significant and, sadly, not unique to Goa.

Natural resources can be of huge benefit to countries and can be used to improve and develop the economies of those countries blessed with them, if managed well. They can transform poor countries. For example, in 2012, Nigerian oil exports were worth almost $100 billion, which is equivalent to more than the total net aid to the whole of sub-Saharan Africa. In 2007, Botswana became an upper middle-income country, although upon independence back in 1966 it was one of the world’s poorest countries. That success is largely due to well-managed mining revenues from diamonds.

Mining developments internationally therefore have the potential to boost economic growth dramatically and to provide a route out of poverty for resource-rich countries. However, there are also many examples of the temptation of such money leading to corruption and the kind of problems the hon. Gentleman outlined; natural resources can be more of a curse than a blessing for particular countries.

Extractives companies, whether listed or unlisted, are important partners for the Government. We want to make sure that developing countries can make the most of their natural resources to tackle poverty. We are committed to increasing transparency in the sector, encouraging strong, transparent and accountable institutions to regulate extractives properly and promote open markets and societies. We therefore need to facilitate an environment in which resource-rich developing countries and regions can attract responsible investment to help them transform the vast potential that natural resources offer into growth, jobs and development.

During the UK presidency of the G8 in 2013, we secured a commitment to working towards common global standards of extractives transparency. We want to level the playing field for business internationally and provide information for more citizens around the world, so that they can hold their Governments to account for how such resources are used. The G8 also launched eight partnerships, working with companies, Governments and civil society in resource-rich countries to improve transparency and build accountability and capacity to manage resources better. Our work through Department for International Development country offices is helping resource-rich developing countries to derive the maximum benefits from oil, gas and mining projects.

The problems the hon. Gentleman described impact significantly on the human rights of the population of Goa—on their rights to health, clean water and due legal process. As he will be aware, UK-listed companies are already required to report on the human rights implications of their operations. Those reports will be further strengthened under the recently agreed directive on non-financial reporting, which will be in place by 2017 and requires listed companies to include information on human rights in their strategic reports.

High standards of reporting on human rights issues are an inherent part of the UN guiding principles on business and human rights, which were adopted in 2011. In 2013, the UK was the first country to publish an action plan on business and human rights, which sets out the Government’s expectations of business to respect human rights at all times. In December, I was delighted to attend the third UN forum on business and human rights in Geneva, which had a constructive atmosphere with an increased business presence; civil society was very engaged in making the forum a success. UN action on this agenda is now in place and an increasing number of countries—although not yet enough—are producing action plans. We want to encourage work and progress on this agenda in countries around the world.

The UK is showing leadership on the issue; indeed, this evening, I will be launching the UN guiding principles reporting framework, which provides, for the first time, a comprehensive standard for reporting so that companies can be held to account by shareholders and customers. The reporting framework applies to all sectors, including extractives. Newmont Mining is one of five companies that have committed to applying the framework straight away.

The combination of enhanced disclosure in the strategic report and the UN guiding principles reporting framework, which sets the standard for that disclosure, will mean that from 2017 listed companies will be more effectively held to account for the human rights impacts of their operations. For that reason, I am proud of the work this Government have done on human rights.

We are also leading the way on extractives transparency. Back in May 2013, we made a commitment that the UK would sign up to the extractives industry transparency initiative, or EITI. In October, after a lot of work by a multi-stakeholder group, we formally gained candidacy status and will now proceed to produce the first reports. UK corporations have engaged constructively with civil society and Government, and their approach is a real example of how progress can be made. The whole process of EITI is designed to build trust and dialogue, and to put information into the public domain, which then prompts public debate. That can be a useful tool for holding companies to account. To give an example, in the Democratic Republic of the Congo, which is not necessarily renowned for its good governance, the EITI process was the first time different stakeholders sat down around the same table to discuss mining sector management. That kind of dialogue and co-operation can also help to prevent conflict.

Many extractive companies listed or headquartered in the UK are active in supporting EITI; for example Rio Tinto and Shell are part of the multi-stakeholder board I have mentioned. The UK’s intention in signing up to EITI is to show that it is not just for developing countries. We want to show that it is not a case of the UK simply telling other countries what they need to do; we recognise that we need to lead the way. That gives us a much stronger argument in our international discussions on the issue.

In addition to EITI, there is also chapter 10 of the accounting directive, which requires listed and large extractives companies to report the payments they make to all Governments. The Government committed to early implementation of those provisions, and our regulations came into force in December 2014. The Financial Conduct Authority, which the hon. Gentleman mentioned, has also changed its rules to require listed companies that are not registered here in the UK to report, implementing the requirements of the transparency directive. Companies will be required to report their payments to Governments from 1 January this year, six months ahead of the EU’s transposition deadline. We will start to see reports being published during 2016.

Bribery and corruption are barriers to trade and growth. The UK is a signatory to the UN convention against corruption and the OECD bribery convention. The Government published the first UK anti-corruption plan on 18 December last year, bringing together all the UK’s anti-corruption efforts under one cross-departmental plan. The Bribery Act 2010 came into force in July 2011, so a company that carries on business in the United Kingdom can be prosecuted for bribery anywhere in the world. On the other hand, other companies can trade on the honesty and integrity that the Bribery Act implies, bringing a benefit for business.

I am aware of the issues the hon. Gentleman raised about Vedanta in particular. It is important that companies listed in the key financial centre of London, which are therefore UK companies, are held to high standards. Quoted companies have to include information about environmental risk in strategic reports. Of course, some corporate governance failures will not necessarily be addressed purely through shareholders holding companies to account; that is one important route of accountability, but some failures may be so serious that the company and directors are exposed to criminal liability. For example, if a commercial organisation fails to put in place adequate procedures to prevent bribery, it could be criminally liable under the Bribery Act.

It is important to be clear: we expect all UK businesses to comply with all applicable laws and to respect internationally recognised human rights wherever they operate. It is no excuse if an offence is committed in another jurisdiction—a company should not feel that it can get away with behaviour and practices in a distant part of the world that it would not even attempt to get away with here.

Trust and transparency are incredibly important, which is why we have prioritised them as part of our corporate governance framework. Wide-ranging reforms in the Small Business, Enterprise and Employment Bill will enhance corporate transparency and increase trust in UK business. Central to that is implementing a publicly accessible central register of information on the people who ultimately own and control companies—the persons of significant control. We are proud to be leading globally in this space, and are encouraged by the growing international momentum on these issues. For example, the soon to be adopted fourth money laundering directive will require all EU member states to hold company beneficial ownership information in a central register.

It is absolutely right that the hon. Gentleman has raised these serious issues. It is a positive thing that a particular problem in a particular area of the world, or with a particular company and its practices, can be highlighted in this place and a spotlight shone on such activities. He has done that today through this debate on mining in Goa. I hope I have set out that the Government take these issues incredibly seriously and are aiming to be a world leader in transparency and accountability—in extractive mining companies and much more widely—as well as in encouraging businesses to take their human rights responsibilities seriously.

There is no room for complacency. We must continue to promote these issues. There will always be money to be made somewhere in the world by exploiting human rights, but that is unacceptable and we in the UK should have no truck with it whatsoever. That is why it is so important to empower citizens in Goa and elsewhere to encourage the development of strong corporate governance, and to make sure that UK-listed mining companies are able to lead the way on these matters.

Question put and agreed to.

17:00

Sitting adjourned.