Comparative Corporate Governance - Mineral Sand Mining in Kerala

Comparative Corporate Governance Assignment 2015-2017

2| P a g e University of Strathclyde Business School

Content



Memorandum

To

The Directorial Board

Natural Resources International PJSC

Alappuzha

Kerala -650543

From

The Advisor

Natural Resources International PJSC

Alappuzha

Kerala - 750543

Date: 21st May 2015, Thursday

Subject: Analysis of the importance of the various Stakeholders of the Natural Resources International



Introduction

Natural Resources International PJSC is a mining company in Kerala which deals with the mining and

extraction of mineral sand mining. These minerals have a huge potential in the national as well as

international markets and hence the government leased 17 kilometers land (Valiyazhikkal to Thottappilly)

within the wide spread 580 kilometers of coastline for this it’s mining.

What is mineral sand mining in Alappuzha?

Image 1

Sand mining is the extraction of rare earth minerals from beaches, open pits and other sources.

Case

This memorandum is prepared in order to analyze the relevance of opinions of the board of directors

regarding issues faced by the stakeholders.

Objective of the study

To determine the effects of various stakeholders involved in the Alappuzha sand mining industry.

Analyze the negative impact of mining in the lives of people living in the Alappuzha coastline

Provide suggestions to increase the welfare of the company to the important stakeholders

Lifestyle of the Local People



Alappuzha, Kerala according to the census of 2001 is identified to be one of the most densely populated

areas not only in India but also the whole of Asia. The population in Alappuzha’s coastline highly

depends on sea and inland fishing.

One of the most significant demographic features of this state is the backwaters (one of four in the world)

which run parallel to the sea separated by land spit.





Who is a stakeholder of a mining company?

Image 3

A stakeholder of a mining company is any individual, community, competitor, consume, customer,

investor, partner, press, public authorities, reseller, scientific or academic community, supplier,

workforce, civil society organization or others who either has interest and/ or deals with the organization

in a direct or indirect way.



Importance of Stakeholders in the mining industry

Employees and Shareholders

Employees/ Workforce: Growth and prosperity of the company is crucial for the employees in the short

and long run as their earnings in terms of salaries, bonus and incentives depend on the performance of the

company. Example - Coolie Laborers, CITU load workers, Employees within the factory.

Investors & Partners –Generally the public would be interested in the purchase of a company’s shares

only if its stock prices show constant upward movement or progress and if it produces a good annual

financial report.



Other Stakeholders



1 Providers of Credit: Natural Resources International is a joint sector company (government & private

sector), the facilities are borrowed from the “Central Bank of India” at a subsidized rate. Urgent cash

requirements are met from a private sector financial intuition named “Mutooth Financial Corporation”.

Though it is a joint venture, since the company is a different entity as a whole, it is mandatory for the

company to produce a good annual financial report in order to keep up the interest of such finance

providing institutions.

2 Suppliers: The main supplier of machinery for the company is Larsen & Turbo. To reduce the huge

seed capital, the company has leased out the machinery from L&T for a renewable period of 5 years. L&

T also provides a credit period of 30 days and it is mandatory to perform and project good financial

reports to provide the suppliers with the security of payment to be credited on time with no delays.

4 Reseller: The reseller purchases the sand from the company and resells it to the consumers

(construction companies and others) at a much higher cost within the state (the company would be taxed

if the state border is crossed).

3 Customers & Community: The Company focuses on the extraction, use and sale of Ilmenite/ Titanium

Dioxide which is majorly used to make alloys with aluminum. The residue of the extraction contains

radioactive minerals such as Monazite and Zircon. The company sells off the residue partially to a third

party (reseller).

5 Civil Society Organizations (CSO)/ Press and Public Authorities:

According to the census report of 2011, the Alappuzha district has a literacy rate of 95.72%. The press in

Kerala is very active and keenly looks into such environmental issues. There had been instances where

several companies within the states had been shut down by the society, press and public authorities due to

such health concerns.

6 Society and Scientific Community: According to the study, the residual toxic sand is used for building

construction which leads to higher exposure to radiation. There is also an increase in diseases like cancer

at an alarming rate. Children born in this area were crippled, unusual abortion rates, affected the mental

health and increased the suicidal tenancy of people.

Customers & Community



Ecological Impact of Mining

There are several ecological impacts to the surrounding areas of the sand mines.

Air – The segregation of minerals from the raw sand produces dust particles which may be radioactive in

nature. Prolonged exposure to these particles could create health and respiratory issues.

Water –The dug up mineral sand if left uncovered escapes into the air and gets settled into the land and

water bodies upon rain. In this way both land and aquatic animals gets heavily exposed to radiation. This

affects the main income generation activity which is fishing.

Land - While analyzing the data it was observed that the coastal region receives an annual average

rainfall of 234.5 mm per month. It is to be noted that the distance between the sea and freshwater is hardly

10 meters. The monsoon results in rough sea and heavy soil erosion which creates a good probability that

the narrow strip of land that separates both the water bodies could break. This could alter the PH level in

the back waters and is a major threat to the aquatic creatures. Paddy fields in Kuttanad are the rice hub of

Kerala also heavily depends on back waters for irrigation.



Famous Environmental Movements which shows the power of common man in Kerala

Silent Valley Movement – The strength of the community members was shown to the government by the

cancellation of the project in order to protect the lion tailed macaque and to prevent deforestation.

Chaliyar River movement –In 1963 the establishment of the Grasim Rayon’s pulping plant lead to

major river pollution, damage to the aquatic creatures, vegetation and humans. Due to this reason the

local community formed a revolt against the company which eventually had to cease its operation.

Movement Against Endosulfan - Endosulfan is an insecticide which was sprayed on cashew plantations

in Kasargod which crippled children and affected the mental health and increased the suicidal tenancy of

people. With the help of major political parties the social workers were able to put an end to using

endosulfan.

Movement Against Coca Cola Factory – The coca cola factory at Plachimada was forced to cease

operation at this area due to pollution and depletion of water table.



Scandals and Issues

The India government signed the Indo-US Civil Nuclear deal in 2007 keeping in mind its abundant rare earth mineral reserves

Later in the study it showed that in 2001, 2.1 million tons rare earth minerals disappeared from the

shores of India (Manavalakurichi). The Thorium alone gone missing is valued at Rupees 60, 00,000 Crore.

The beach in Tamil Nadu has the world’s largest rare earth mineral deposit which contributes to 30 % of

Thorium reserves of the world.

About more than 80% of the sand mines in the state of Tamil Nadu is owned by a Tirunelveli based

business man who has monopolized this market who is suspected to be behind illegal export of these

minerals.

Other Issue in the Past 2 Months

104 individuals arrested at Naglal and 81 vehicles seized. In the past six montha, a massive crackdown

on illegal sand mining in Gautama Buddha Nagar district had been carried out which resulted in the

above.

Sand mining causes Yamuna to shift 500m east, threaten 10th August 2014

Sand mafia resumes mining illegally at airport site at Mumbai on the 26th of March 2015

MP cop’s brother loses legs after falling off train 10th of April 2015 – Family members of a Madhya

Pradesh based cop was killed a while ago when he fought the sand mafia. Now the most recent tragedy

occurred when his brother lost both his legs while fighting with an unknown group of people.

6 policemen accompanying cop killed by sand mafia 12th of Aril 2015

Sand Mafia Blow up a crocodile at the Sind River (19th April 2015) – The sand mafia blew up a fully

grown crocodile at the Sind river and buried it under the sand

Illegal Mining at the Chambal river causes threat to Gangetic dolphins (22nd April 2015) - The Gangetic

dolphins are known for laying their eggs on the river banks deep beneath the sand. The eggs hatch into

the water body. Though there has been an increase in the population of the river dolphins, the 500

tractors trolleying on the river banks is a major threat to this endangered species.

Collector of Yavatmal implements surprise raid at the illegal sand mining site and imposes a Rupees 5,

00,000 fine on the 6th of May 2015

The Ravi River Scam (Navi Mumbai) 10th May 2015- The sand mafia here performed illegal mining Ravi

River at Navi Mumbai which involved heavy drilling and field work. This activity changed the course of

the river itself. Though heavy fines were imposed this activity is still performed illegally and the lives of

the government officials in charge are in threat by the mafia itself.



F26 MVD officers apply for gun license on 12th May 2015 – 26 police officers apply for gun License

fearing the sand mafia

Sub inspector Injured at Kannur (17th May 2015) –A sub inspector who tried to stop a mini truck which

carried the illegally mined sand was injured badly.

Police launches a new sand mafia track down method on the 5th of April 2015 and books around 20

people



SWOT Analysis of Mineral Sand Mining in Alappuzha

Strength

Financial strengthening of the economy

Increase in employment opportunity

Weakness

Involuntary resettlement of indigenous people who only have knowledge in certain jobs

Deforestation, increase in soil erosion and loss of land to the sea, disturbance to flora and fauna

Opportunities

Alappuzha is a potential fishing ground and has a huge potential for the export of fish

The topography of Alappuzha if favorable for coir production and farming and since organic

farming is in demand, the local people could cultivate vegetables free of pesticides which is of

demand in the local as well as the international market

One of the four backwaters in the world is located in Alappuzha and the coastal region is blessed

with the unique phenomenon of Chakara which could be promoted as a part of tourist attraction.

Due to the presence of radioactive elements, Alappuzha is a potential ground for the production

of atomic fuel

Threats

Illegal mining and export by sand mafia

Change in topography of the land

Threat to the lives of local and government officials

Exposure to radiation creates health issues like cancer, unexplained abortions, breathing disorders

mentally and physically challenged new born infants, hypertension and increase in suicidal

tenancy of the locals

Loss of valuable rare earth minerals

Formation of pits on the coastal sea floor which causes danger of drowning to fisher men

Threat of the sea and the backwaters uniting and thus altering the natural PH level in the water

Chemical contamination of the land, water, air and reduces the frequency of the unique

phenomenon “CHAKARA”



Findings and Suggestions

Findings

The major advantage of this study was the knowledge in local language and the personal visit to the site.

Alappuzha has a huge potential for fisheries and fishing related activities. The nature and the topography

of this land also favor coir production, farming, tourism, Ayurveda.

Though the company contributes towards the strengthening of the economy, it involves involuntary

resettlement of indigenous people, deforestation, soil erosion, threat to the flora and fauna and totally

changes the lifestyle of the people living in this area.

In accordance with the study performed with reference to the recent scandals, scams and issues faces by

the stakeholders, it could be predicted that there could be similar issues arising in the background

affecting the people at a large scale. For example as mentioned earlier, in the recently history there has

been issues of murders and death caused by this activity. Mineral sand worth crores were illegal exported

to the forging countries based on its demand. The stakeholder’s (community members, government

officials) are at risk due to the environmental issues as well as the mafia’s activities.

Suggestions

Implementation good strong corporate governance measures to avoid scandals such as

a) Rotation of directors every 3-5 years

b) Rules and Norms to be implemented in purchasing company shares

c) Formation of a HR/ Compensation committee in order to provided performance based

compensations

d) Policy for disclosure of information should be implemented with the board of directors and the

public

e) Review of content and certificate periodically

f) Appointment of a strong audit committee with charted accountants which rotate periodically

g) Formation of an Environment Health and Safety Committee

Usage of effective scientific methods of mining (deep mining instead of surface mining) and the

process to be performed in a closed and controlled environment (which enhances the reduction in

radiation leakage) and spraying of water when the radioactive particles are left to the air

The company should involve in CSR activities such as training and employment to the local

community who has lost their homes and livelihood, housing projects to the homeless, free

education to the children who had been affected by this issue, provision of seed capital for small

business and must be market well.

Neutralization of chemicals and radiation before selling it to the customers and resellers and using

it to fill land pits

Initiatives in widening and strengthening the sea wall with rocks, concrete, sand and reforestation

with coconut trees.

Atomic fuel production



Conclusion

I would like to conclude this memorandum by saying that the company’s growth could be achieved only

by considering the interest of the stakeholders at a macro level. Multinational companies such as Toyota

had recalled its faulty produce to keep the lives of its customers safe. Though this activity cost the

company a fortune, it built an element of strong trust in the society’s hearts which in turn portrayed the

company’s image in a great way.

The company should invest more in reliable, ecofriendly and scientific approaches in handling these

radioactive resources with care and importance given to its surrounding environment.

It is mandatory to follow certain corporate governance principles such as mentioned earlier to avoid/

reduce the number of scandals and the issues that may arise from within and outside the organization for a

predictable and sustainable future.









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Comparative Corporate Governance - Mineral Sand Mining in Kerala

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